New short form prospectus proposed for secondary offerings

As part of the EU's Capital Markets Recovery Package, announced on 24 July 2020, the EU is proposing a new type of short-form prospectus for companies that have a proven track record in the public market ('EU Recovery Prospectus'). Other changes to the EU prospectus regime are also proposed relating to financial intermediaries and credit unions.

The EU Recovery Prospectus is a temporary measure only that has been conceived in direct response to the COVID-19 pandemic. It will be available for secondary offerings of shares and will only be available for 18 months.

Its aim is stated as being "to enable companies to access new funding in a short time period to help with the economic recovery from the COVID-19 pandemic. In particular, it aims to help companies raise equity so that they can restore sustainable debt-to-equity ratios and become more resilient."

The changes are in a draft Regulation (and draft Annex) that will amend the Prospectus Regulation.

EU Recovery Prospectus

The EU Recovery Prospectus will:

• be a single document of only 30 pages;
• have a two page summary;
• focus purely on the essential information that investors need to make an informed decision; and
• have minimum content requirements which are set out in a draft Annex to the amending regulation.

Incorporation of information by reference will be allowed and that information will not count in the maximum size of 30 pages.

This simplified prospectus route will be available to issuers that have been trading on a regulated market or an SME Growth market continuously for at least 18 months and want to do a secondary offering of shares.

The reduced disclosure in the prospectus is expected to reduce the cost of drawing up a prospectus and make the document easier to understand. It should also make review by the national competent authorities easier and so the prospectus approval period for these prospectuses will be reduced to 5 working days.

The EU Recovery Prospectus can also benefit from the EU single passport of approved prospectuses for cross-border offers.

Other proposed amendments

The European Commission is also proposing the following amendments to the Prospectus Regulation that are intended to facilitate fundraising by banks.

Supplementary prospectuses

Financial intermediaries are currently required to inform investors of the possibility that a supplement to a prospectus will be published and, under certain circumstances, to contact investors on the same day that a supplement is published. The scope of investors to contact as well as the deadline in which to contact them has caused difficulties for financial intermediaries.

The amendment clarifies their obligations. Financial intermediaries will only need to:

• inform those investors that have purchased and subscribed for securities through them of the possibility of the publication of a supplement, provided that the purchase or subscription was agreed between the time when the prospectus had been approved and the closing of the offer period or the time when trading on a regulated market had begun, whichever occurs later

• after publication of a supplement, contact those investors benefiting from a withdrawal right.

The deadline for contacting them is extended to one working day from the publication of the supplement.

Withdrawal rights

To safeguard investors, the period during which a withdrawal right can be exercised by investors is extended from two working days to three working days from the publication of the supplement.

Credit unions

The threshold for an offer by a credit union of non-equity securities issued in a continuous or repeated manner without a prospectus will be raised from EUR 75 million to EUR 150 million. This measure will also only be temporary and available for 18 months.

Timing

The European Parliament and the Council must now agree the text of the draft regulation. The changes to the Prospectus Regulation will, once in force, be directly applicable in Member States.