Hard facts:

  • short prospectus with a maximum of 30 A4 pages
  • for capital increases of existing issuers
  • issue of up to 49.9% of the already issued shares
  • shortened approval period of 7 working days
  • usable until 31 December 2022

 

1. Background

The economic crisis resulting from the COVID 19 pandemic is having a significant impact on EU member states. In addition to medical measures, a coordinated economic response to ensure the liquidity of the EU financial sector and avoid an imminent recession is crucial to the European Commission. [1] Part of the EU Recovery Plan [2] are measures to stimulate the economy and private investments. The focus on such measures results from the perception of the European Commission that liquidity and access to capital will be increasing challenges for businesses.

On 24 July 2020, the European Commission therefore published a package of measures to help capital markets recover from the consequences of the COVID 19 pandemic. [3] Part of this package is an amendment to Regulation (EU) 2017/1129 („Prospectus Regulation“), which aims to simplify the issuance of shares. In principle, the offer of securities or their admission to a regulated market requires an audited prospectus in accordance with the requirements set out in the Prospectus Regulation. A prospectus serves in particular to inform investors and disclose risks on the part of the company. The production of a prospectus is definitely associated with effort and thus with costs. As a result, capital measures that require a prospectus often remain disregarded. According to the European Commission, however, the prospectus should not be an obstacle for already listed issuers to raise capital on the capital market in the current situation. Due to the economic urgency resulting from the COVID 19 pandemic, the procedure for raising capital quickly shall therefore be simplified for issuers.

For this purpose, the EU Recovery Prospectus, as a new prospectus type, will be introduced for a limited period until 31 December 2022.

 

2. The EU Recovery Prospectus

With simplified and faster access to the capital market, the EU Recovery Prospectus aims to help companies raise equity as quickly as possible so that they can regain a viable debt ratio and become more resilient.

The objectives of the EU Recovery Prospectus are to:

  • provide simplified disclosure requirements tailored to the specific needs of post-crisis companies;
  • reduce regulatory hurdles that could affect the recapitalisation of companies;
  • maintain the prospectus as the relevant instrument for informing potential investors;
  • reduce the cost of producing a prospectus and make the document easier to understand by facilitating disclosure; and
  • make the review by the competent authority more efficient, which can, for example, shorten the approval period.

Accordingly, the EU Recovery Prospectus should be (i) easy for issuers seeking to raise equity capital in the financial markets to produce, (ii) easy for investors to understand, and (iii) easy for the competent authority to review and approve.

The EU Recovery Prospectus can only be used for the public offer or admission to the regulated market of shares of already listed issuers and only until 31 December 2022. The new prospectus type is not available for the issuance of bonds or other financial instruments or the initial public offering of shares (IPO).

2.1 Who can use the EU Recovery Prospectus?

The EU Recovery Prospectus may be used by issuers for the offer or admission of shares, provided that their shares:

  • have been admitted to trading on a regulated market continuously for at least the last 18 months; or
  • have already been traded continuously on an SME growth market for at least the previous 18 months, provided that a prospectus for the offer of such shares has been published.

In addition, third parties offering shares, which have been admitted to trading on a regulated market or an SME growth market continuously for at least the last 18 months, may use the EU Recovery Prospectus.

This restriction of access to the EU Recovery Prospectus hat the background that for already listed issuers , a lot of the information to be presented in the prospectus is publicly available anyway; mainly because of a previously published prospectus, regular reporting, ad hoc announcements, and other post-admission obligations.

There are, however, two limitations that need to be considered:

  • the shares to be issued must be fungible with the previously issued shares (i.e. no issue of shares of a new class of shares); and
  • the number of shares to be issued by means of an EU Recovery Prospectus within 12 months must be less than 150% of the number of shares already admitted to trading.

2.2 Length and content of the EU Recovery Prospectus

Consistent with the objective of simplifying and speeding up the raising of capital, the EU Recovery Prospectus should not exceed 30 A4 pages. The summary, which must not be longer than two A4 pages, is included in that limit.

Within this amount of pages, the most essential information shall be presented and included in an easily analysable, concise, and comprehensible form. Investors (especially retail investors) must continue to be in a position to make an informed investment decision, taking into account already published information. For this purpose, the EU Recovery Prospectus must provide information on the following:

  • the issuer’s prospects and financial performance and the significant changes in its financial and business position since the end of the last financial year, and its financial and non-financial long-term business strategy and objectives, including a specific reference of not less than 400 words to the business and financial impact of the COVID 19 pandemic on the issuer and its likely future effects; and
  • the material information relating to the shares, including the rights attached to those shares and any limitations on those rights, the reasons for the issue and its effect on the issuer, including the effect on the issuer’s overall capital structure, disclosure of capitalisation and indebtedness, a statement of working capital, and the use of proceeds.

The specific minimum content of the EU Recovery Prospectus, which follows the previous requirements of the Prospectus Regulation, is set out in a new Annex Va to the Prospectus Regulation, whereby the order in which the information is arranged is left to the discretion of the issuers.

2.3 Prospectus approval

In order to allow issuers to seize the opportunity to raise capital quickly, the competent authority’s review period for the approval of the EU Recovery Prospectus is reduced to seven working days. However, an issuer shall notify the competent authority of its project at least five working days before applying for the prospectus approval.

 

3. Status of the legislative process and conclusion

On 16 December 2020, the EU ambassadors endorsed the planned amendments on behalf of the European Council. However, after the legal and linguistic revision of the text, the European Parliament and the European Council still have to formally adopt the amendments to the Prospectus Regulation, without further deliberation. This is expected to take place in February 2021. [4]

Thus, the EU Recovery Prospectus will be available to issuers in the near future and will enable them to raise equity quickly with little prospectus-related effort until 31 December 2022. In view of the considerable facilitations, we deem it advisable to evaluate the raising of capital using the EU Recovery Prospectus. It remains to be seen, however, how the EU Recovery Prospectus will be assessed by investment banks and investors.

The introduction of the EU Recovery Prospectus and the resulting facilitation of capital measures requiring a prospectus are in any case to be welcomed. The specification of a maximum length for a prospectus is a novelty that will pose challenges in practice and could be a forerunner for a future general limitation of the length of prospectuses. Depending on the acceptance of the EU Recovery Prospectus in the market, efforts to implement this new type of prospectus permanently could also be successful.

 

Author: Philipp Schrader

 

Do you have questions about the EU Recovery Prospectus or do you need support with a capital measure? Feel free to contact us!

 

[1] Cf. Communication from the Commission to the European Parliament, the European Council, the Council, the European Central Bank, the European Investment Bank and the Euro Group – The coordinated economic response to the COVID 19 pandemic (COM(2020) 112 final, 13.3.2020).

[2] Communication from the Commission to the Council, the European Parliament, the European Council, the European Economic and Social Committee and the Committee of the Regions ‚The European Hour – repairing the damage and opening up prospects for the next generation‘ (COM(2020) 456 final, 27.5.2020).

[3] Cf. European Commission press release of 24.7.2020 https://ec.europa.eu/commission/presscorner/detail/de/ip_20_1382 and Q&A of 24.7.2020 https://ec.europa.eu/commission/presscorner/detail/de/qanda_20_1377 (each last accessed on 15.1.2021).

[4] Compare https://www.consilium.europa.eu/de/press/press-releases/2020/12/16/capital-markets-recovery-package-council-confirms-targeted-amendments-to-eu-capital-market-rules/ (last accessed on 15.01.2021).