On 5 April 2017, the proposal for a new Prospectus Regulation was approved by the European Parliament. It is now awaiting final adoption by the Council. The new Prospectus Regulation will replace the EU Prospectus Directive 2003/71/EC which currently regulates the requirement on issuers to publish a prospectus when making an offer of securities to the public or when listing securities on a regulated market in the EU.
The new Prospectus Regulation aims to improve and simplify the access to the capital markets in a cost-effective way, especially for small and medium sized entities (SMEs).The following changes are likely to have a direct impact on future ECM transactions:
- Doubling the size of secondary issues on regulated markets without triggering a prospectus requirement: the new Prospectus Regulation gives regulated market issuers the ability to conduct a private placement of new securities up to 20% of their existing listed securities and to have such new securities admitted to listing without the need to issue a listing prospectus, up from 10% currently.
- Creating a new fast track and simplified frequent issuer regime: in Belgium, a prospectus requires the prior approval by the Financial Services and Markets Authority (FSMA). Frequent issuers can opt to use a universal registration document (URD), containing all the necessary information on the issuer that wants to list shares or issue debt. In future, the prior FSMA approval will only be required for the first two years; afterwards the URD can be submitted without prior approval. Issuers who regularly maintain an updated URD with their competent authority would also benefit from a five day fast-track approval for each new security issue. In practice, the change will probably be limited as the FSMA continues to have the authority to comment on the URD when asked to approve a prospectus (consisting of the URD, securities note and summary note) for a specific issue of securities.
- Increasing the threshold for smaller fundraisings: the obligation to draw up a prospectus under the new Prospectus Regulation does not apply to offers with a total consideration in the EU of less than €1 million (current minimum is set at €5 million). Member States may, however, increase this threshold to €8 million but can require other disclosure requirements at national level for issues not exceeding the threshold to the extent that those requirements do not constitute a disproportionate or unnecessary burden.
- Creating a lighter prospectus regime:
- EU growth prospectus: SMEs (and under certain conditions mid-sized and large companies) that want to undertake an initial public offering on a regulated market will be able to make use of a lighter, simplified prospectus (i.e., the EU growth prospectus).
- Providing a new simplified prospectus for secondary issues: companies that have had their securities admitted to trading on a regulated market or SME growth market continuously for at least 18 months will be able to make use of a simplified prospectus for secondary market issuances. Since more or less 70% of the annually approved prospectuses relate to secondary market issuances according to the Commission, it can be expected that many issuers will be affected.
- Prospectus format:
- Risk factors: in future, risk factors will be divided into a limited number of categories, and the most material risk factors will be mentioned first for each category.
- Summary: the summary of the prospectus will in principle be limited to seven sides of A4-sized paper when printed and will become more information-based. The summary can only contain the 15 most material risk factors specific to the issuer. Wholesale bond prospectuses will be exempt from the summary requirement.
The new Prospectus Regulation will enter into force on the 20th day following its publication in the Official Journal, which is expected mid 2017. However, most of the new rules will only apply as from 2 years from the date of entry into force. Until then European and national authorities will have to adopt several delegated acts, technical standards and implementing measures. We will update this newsletter as soon as they become available.