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Coronavirus - Capital raising in the light of COVID-19: proposal for an EU Recovery prospectus - Europe

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  • Coronavirus - Regulatory issues
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European Commission adopts proposal for EU Recovery prospectus

The European Commission has adopted a legislative proposal to amend the Prospectus Regulation. The amendments include the temporary introduction of a further simplified prospectus regime for secondary issues of shares by companies that have had shares listed on a regulated market or an EU growth market (which includes AIM in the UK) for at least 18 months. The proposals are intended to facilitate the recapitalisation of companies in the aftermath of the Covid-19 pandemic.

What is the EU Recovery prospectus?

The proposals will introduce a new, simplified prospectus regime, known as the ‘EU Recovery prospectus’ that will be available for secondary issues of shares by companies which are admitted to trading on a regulated market or an EU growth market (provided that a prospectus has been published for the offer of those shares) for a continuous period of at least 18 months.

The prospectus will contain essential information required to facilitate informed investment decisions. The minimum disclosure requirements will be set out in a new Annex (Annex Va) to the Prospectus Regulation. A draft of this can be found under ‘Useful links’ below. The requirements include:

  • a responsibility statement;
  • risk factors;
  • financial statements (annual and half-yearly) for the period of 12 months prior to the approval of the prospectus;
  • trend information – this section will include a description of (i) a description of the most significant recent trends in production, sales and inventory, and costs and selling prices since the end of the last financial year to the date of the prospectus; and (ii) information on any known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on the company’s prospects for at least the current financial year;
  • final offer price and amount of shares, including firm commitments from shareholders above 5% and names of the underwriters;
  • information about when and where to subscribe for the shares;
  • reasons for the offer and use of proceeds;
  • a working capital statement;
  • information about any conflicts of interest; and
  • details of shareholdings and voting rights after the issue.

The EU Recovery prospectus would be a single document with a maximum of 30 pages, and a short summary of two pages. Incorporation by reference of information already available in the market would be allowed and that information would not be taken into account in the maximum size of 30 pages. It would benefit from a fast-track approval process of five working days.

The EU Recovery prospectus regime will expire after an 18-month period of application. However, any prospectuses drawn up and approved under the new regime and prior to its expiry will benefit from a grandfathering provision.

What other changes are proposed?

Whilst the measures outlined above will by key insofar as companies that may be considering a fundraising are concerned, other proposed amendments to the Prospectus Regulation include:

  • Supplementary prospectuses: a clarification for financial intermediaries of which investors need to be contacted, and when, if a supplementary prospectus is published
  • Credit institutions: supporting credit institutions by making it easier to raise additional funds on a regular basis without issuing a new prospectus each time.    

Impact and timeframe

These proposals will be of interest to listed and traded companies that anticipate the need to raise capital from their shareholders in the light of the Covid-19 pandemic. The FCA has encouraged the use of the simplified disclosure regime currently available under the Prospectus Regulation for secondary issues, but, if adopted at an EU level, these measures should further reduce the legal and regulatory burden and cost for issuers undertaking fundraisings for a period of time. The EU Recovery prospectus is also intended to be easily understood by shareholders and the shorter approval period is intended to allow issuers to move swiftly to re-capitalise.

The European Parliament and the Council are now required to agree to the legislative texts put forward by the Commission. The changes to the Prospectus Regulation will, once in force, be directly applicable in Member States. This will includes the UK, assuming that the amending regulation enters into force prior to 31 December 2020. The amending Regulation will enter into force on the twentieth day following its publication in the Official Journal of the EU.

At this time, whilst we expect that the EU institutions will want to move quickly to assist listed companies as part of their response to Covid-19, we cannot at the moment provide a definitive timeframe within which these proposals will be implemented.

Useful links

Amending Regulation 24 July 2020

Annex Va

Coronavirus response: How the Capital Markets Union can support Europe’s recovery

European Commission press release