Article by Gary Thorpe of Clyde & Co
Gary Thorpe of Clyde & Co outlines the potential changes to the EU Prospectus Directive.
The EU Prospectus Directive (2003/71/ EC) requires companies seeking admission to an EU-regulated market or making a public offer in an EU member state to publish a prospectus approved by the competent authority in the relevant member state. In the UK, this is the UK Listing Authority (UKLA), although it is set to become the Financial Conduct Authority. A prospectus must contain information as set out by the Prospectus Rules and enable investors to make an informed assessment of the company and its securities.
Admission document
AIM is not an EU-regulated market, so companies seeking admission need to publish an admission document not a prospectus – unless they are making a public offer, which most tend not to do. The contents of an admission document are governed by the AIM Rules (in reality, an abbreviation of the Prospectus Rules) and are not UKLA approved. In general, issuing a prospectus to raise capital is more costly than issuing an admission document and UKLA approval lengthens the timetable.
Exemptions
For companies seeking admission to AIM, there are exemptions from the prospectus regime. These include:
- offers to qualified investors
- private placings to less than 150 people (not qualified investors)
- offers raising less than €5m.
Exemptions are not available for subsequent pre-emptive offers to shareholders, for example, rights issues and open offers, raising more than €5m.
Prospective changes
The EU Prospectus Directive has had little practical effect on companies on the Official List, but on AIM almost all admissions and subsequent fundraisings have been private placings and retail investors rarely participate. However, change is coming. The EU has amended directive (2010/73/ EC) as part of its review of the EU Prospectus Directive. The amended directive will be implemented in the UK by July 2012. It outlines a framework for a proportionate (or reduced) disclosure regime for prospectuses for rights issues, small market capitalisation companies (three-year average of less than €100m) and SMEs. The European Securities and Markets Authority provided final technical advice to the EU Commission on these proposals in October 2011.
So far, indications suggest that a proportionate disclosure regime will be introduced for rights issues for quoted companies on the Official List and AIM. Competent authority approval will remain. It is hoped that open offers will also fully benefit. A similar regime will be permitted for small market capitalisation companies and SMEs on EU-regulated markets but not for an IPO.
A proportionate disclosure regime would be permitted for companies on admission to AIM, even where there is a public offer. This would allow AIM companies to reach a wider category of investors on admission and later, although they would need to bear the cost of issuing a reduced disclosure prospectus and would require competent authority approval.
Looking ahead
There is little to suggest that the prospectus regime has prevented smaller quoted companies from raising capital in any major way. The principal effect has been the dilution of retail investors. Despite this, placings are still an effective way of raising capital. It will be interesting to see how market practice develops once these reforms are implemented.
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