New EU Recovery Prospectus for secondary offerings

The EU has introduced a new short-form prospectus for companies that have a proven track record in the public equity markets (EU Recovery Prospectus). Other changes to the EU prospectus regime have also been made relating to financial intermediaries and credit unions. All of these are temporary measures only that apply until 31 December 2022.

The EU regulation (EU 2017/1129) which makes these changes to the Prospectus Regulation comes into force on 18 March 2021 (Amending Regulation). This has been conceived in direct response to the COVID-19 pandemic. It is available for secondary offerings of shares and, as noted above, is only available until 31 December 2022, although any prospectus approved before then can still be used after that date.

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."

These changes automatically apply in the EU but do not apply in the UK and will not unless the UK decides to implement them, although issuers in the UK can still use the simplified disclosure regime for secondary offerings (see The new Prospectus Regulation: Key changes to the prospectus regime for equity issuers). So, we have the first divergence in the UK from the EU prospectus regime.

In the context of Lord Hill's recommendations to amend the prospectus regime in the UK, especially for secondary issuances, the EU Recovery Prospectus could well serve as a starting point for any future proposals in the UK if it proves successful on the continent.  See The UK listing review - seizing the opportunity for reform? for our views on the Lord Hill review.

EU Recovery Prospectus

What information must be included?

The EU Recovery Prospectus must:

• be a single document of only 30 pages;
• have a self-contained two page summary;
• focus purely on the essential information that investors need to make an informed decision; and
• contain the minimum content requirements which are set out in the Amending Regulation and its Annex, including a responsibility statement, risk factors, 12 months audited financial statements, pro forma information (if applicable), a significant change statement on the company's financial position, trend information, offer details, reasons for the offer and use of proceeds, a working capital statement, conflicts of interest information, and shareholdings post issuance.

Incorporation of information by reference is allowed - that information does not count towards the maximum size of 30 pages. Nor does the two page summary.

Who can use it?

The EU Recovery prospectus is only available to:

• issuers whose shares have been admitted to trading on a regulated market for at least the last 18 months and are issuing shares that are fungible with existing shares;
• issuers whose shares have been traded on an SME growth market continuously for at least the last 18 months, provided that a prospectus has been published for the offer of those shares, and they are issuing shares fungible with existing shares; and
• offerors of shares admitted to trading on a regulated market or an SME growth market continuously for at least the last 18 months.

An EU Recovery prospectus can only be used if the number of shares to be offered represents (together with any shares already offered using an EU Recovery prospectus over a 12 month period)  no more than 150 % of the number of shares already admitted to trading on a regulated market or an SME growth market, as the case may be, calculated at the date of approval of the EU Recovery prospectus.

Timing of approval

The reduced disclosure in the EU Recovery 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 has been reduced to seven working days.

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

Other amendments

The following amendments have been made to the Prospectus Regulation that are intended to facilitate fundraising by banks

Supplementary prospectuses

Currently financial intermediaries must inform investors of the possibility that a supplement to a prospectus will be published and, under certain circumstances, 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.

From 18 March to 31 December 2021, financial intermediaries only need to contact investors that have purchased and subscribed for securities through them between the time when the prospectus was approved and the closing of the initial offer period. They must tell those investors:

• that a supplement may be published
• where and when it will be published; and
• that the financial intermediary will assist them in exercising their right to withdraw acceptance.

Any of those investors that have a withdrawal right must also be contacted by the end of the first working day after the day on which the supplement has been published.

There is a new obligation for the issuer to contact any investors who have purchased or subscribed for shares directly from them.

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.

The supplement must also include additional wording stating that:

• a right of withdrawal is only granted to those investors who had already agreed to purchase or subscribe for the securities before the supplement was published and where the securities had not yet been delivered to the investors at the time when the significant new factor, material mistake or material inaccuracy arose or was noted;
• the period in which investors can exercise their right of withdrawal; and
• who investors can contact if they want to exercise the right of withdrawal.

Credit unions

The threshold for an offer by a credit union of non-equity securities issued in a continuous or repeated manner over a 12 month period without a prospectus has been raised from EUR75m to EUR150m. This measure is also only temporary and available until 31 December 2022.