Out-Law Analysis | 01 Mar 2021 | 10:47 am | 3 min. read
The European Parliament and the Council have approved the amendments to the Prospectus Regulation. The new Regulation was published in the Official Journal of the European Union and will enter into force on 18 March 2021.
The EU Recovery Prospectus (ERP) will temporarily make it easier for companies to raise equity capital. The ERP is meant to be easy to produce, easy to read and easy to scrutinise as it focuses on essential information and is only available for secondary issuances of shares.
This will allow businesses to issue their company shares more quickly with less bureaucracy and lower costs, improving the debt-to-equity ratio in their balance sheets.
As the ERP aims to facilitate recapitalisation during the recovery phase, it will be introduced for a limited period, which ends on 31 December 2022.
The new ERP is one of several measures of the EU's Capital Markets Recovery Package set out to make it easier for capital markets to support economic recovery from the pandemic. The whole package contains targeted adjustments to the Prospectus Regulation, the Markets in Financial Instruments directive (MiFID) II and securitisation rules.
The ERP can be used for share issuances only by issuers whose shares have been:
There are additional requirements: Issued shares must be fungible with previously issued shares, meaning that issuance of new classes of shares, for example, is not allowed.
The number of shares offered within the prior 12 months must be less than 150% of the number of shares already admitted to trading on a regulated market or an SME growth market on the date of approval of the ERP.
The logic behind allowing the use of an ERP exclusively for issuers whose securities are already listed is that a great deal of information about those issuers is already publicly available, including information contained in the initial public offering and subsequent offering prospectuses, periodic reporting, public disclosures and other announcements provided in accordance with post-admission obligations.
An ERP will not enable issuers to move from an SME growth market to a regulated market.
With the new amendments, the length of time required for prospectus approval will be significantly reduced. Therefore, the competent authority’s review period for the approval of an ERP will be limited to seven working days. However, an issuer must notify the competent authority of its intended submission at least five working days before applying for the prospectus approval.
The ERP should only focus on essential information which investors need to make informed investment decisions. Thus, it comprises a single document containing a maximum length of 30 sides of A4-sized paper when printed.
The requirements for content will be set out in a new Annex Va to the Prospectus Regulation. It must be written in concise and comprehensible form, and must include:
The summary of an ERP is to be drawn up as a short document written in a concise manner of a maximum length of two sides of A4-sized paper when printed.