Equity Capital Markets Update: A Year of Wait and See
12 December 2018
Key developments in 2018 include:
New Prospectus Regulation to Improve Access to Capital Markets
We have written previously about the new Prospectus Regulation (EU 2017/1129) which came into force on 20 July 2017, here. The Minister of Finance signed the Prospectus (Directive 2003/71/EC) (Amendment) Regulations 2018 (2018 Irish Regulations) into law in August 2018.
In brief the 2018 Irish Regulations made the following changes to the 2005 Regulations:
An offer of securities to the public with a total consideration in the EU of less than €1 million will not be subject to the Prospectus regime.
Any offers of securities with a total consideration in the EU of €5 million, calculated over a 12 month period, are exempt from the requirement to publish a prospectus. The threshold has increased from €100,000.
The exemption for fungible securities already admitted to trading on the same regulated market has been increased. The exemption applies provided that fungible securities represent less than 20% (up from 10%) of the number of the same shares of the same class already admitted to trading on the same regulated market over a period of 12 months.
A cap has been introduced on the exemption for shares resulting from the conversion or exchange of other securities or from the exercise of the rights conferred by other securities. The resulting shares must now represent less than 20% of the number of shares of the same class already admitted to trading on the same regulated market in order to qualify for the exemption.
A new exemption has been introduced in respect of securities resulting from the conversion or exchange of other securities, own funds or eligible liabilities by a resolution authority under the exercise of a power under the Bank Resolution and Recovery Directive.
The remaining provisions of the EU Prospectus Regulations will become directly effective from 21 July 2019.
The UK Governance Code 2018
The new UK Governance Code was published by the Financial Reporting Council (FRC) in July 2018 (2018 Code). The FRC’s mission is to promote transparency and integrity in business and it sets the UK Corporate Governance and Stewardship Codes and UK accounting and actuarial standards. The 2018 Code applies for periods commencing on or after 1 January 2019.
The 2018 Code has been designed to set higher standards of corporate governance so as to promote transparency and integrity in business. The 2018 Code is shorter and sharper than the previous version and has a renewed focus on its main Principles, the Supporting Principles having been removed. The 2018 Code does not set out a rigid set of rules, instead it offers flexibility through the application of Principles and through ‘comply or explain’ provisions and supporting guidance. The highlights of the 2018 Code can be viewed here
The revised IPO process in the UK
The Financial Conduct Authority (FCA) introduced new rules in its Conduct of Business Sourcebook. These new rules apply to all IPOs where shares are admitted to trading on a regulated market in the UK. They do not apply to IPOs on AIM or other multilateral trading facilities but in practice will apply in Ireland as most main market IPO’s are dual listings. None have taken place in 2018. Under the new rules, there is mandatory early publication of a registration document before the publication of connected research. There is also a requirement to offer unconnected research analysts an opportunity to cover the issuer on an equal footing to connected analysts. Contact between the issuer and connected research analysts is not permissible when an investment bank is in the pitch phase and before syndicate roles are confirmed in writing by the issuer.
The 2018 Irish Prospectus Regulations, the UK Governance Code 2018 and the revised IPO process in the UK have had little practical bearing so far. This is because many exempted offers would have relied on the number of persons limitation, the fact that the UK Governance Code will apply to periods commencing on or after 1 January 2019, and that there have been no IPO’s which have completed in Ireland which are subject to the revised IPO process. However, we expect these changes to have more impact in 2019.
In addition, The Central Bank is to consolidate its Transparency Rules and Market Abuse Rules which will make for a more streamlined and accessible regime and the bulk of the changes introduced by the new Prospectus Regulation will apply from July 2019.
For further information, contact a member of our Equity Capital Markets team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.