On 20 July 2017, after its publication in the Official Journal on 30 June 2017, the new Prospectus Regulation entered into force. The Prospectus Regulation will begin applying on a rolling basis, with full application from 21 July 2019 and will replace the previous EU Directive 2003/71/EC. As with any other EU Regulation, its provisions will be legally binding in all EU member states without transposition into national law as from the day of entry into force. Except for some specific provisions that applied from 20 July 2017 and from 21 July 2018, the bulk of its provisions will apply from 21 July 2019, after which the existing Prospectus Directive 2003/71/EC regime will cease to have effect.
Until the final application of the Prospectus Regulation, the WpPG requires every public offering of securities (debt and equity) in Germany to be based on a prospectus, if no exemption for this requirement as stated in the WpPG applies. According to the WpPG, the content of the prospectus should, inter alia, contain the following:
- a summary, regarding the issuer and securities, the key features of the offering, and a warning notice, that is concise and in non-technical wording, is comprehensible to the general public, and the length of which reflects the complexity of the issue but does not exceed 7 per cent of the prospectus or 15 pages overall;
- presentation of the risk factors;
- information about the issuer (eg, name, seat, business overview and executive bodies);
- financial information, including annual financial statements (containing the auditor’s report) and quarterly, semi-annual or annual financial reports (if applicable or available);
- an explanation of the financial results;
- an explicit working capital statement; and
- information on the securities to be offered and the terms and conditions of the offer.
Further, where an issuer has a complex financial history, the entire business aspects of the issuer may not be covered by the historical financial information relating to the issuer, but will be covered instead by financial information drawn up by another entity. In those cases, the corporate structure or the financial situation of the issuer has to be disclosed in more detail if such fundamental changes in the corporate or financial structure during the relevant financial period have occurred. Commission Regulation (EC) No. 211/2007 amended Directive 2003/71/EC regarding the financial information that must be included in a prospectus where the issuer has such a ‘complex financial history’ or has made a significant financial commitment.
The prospectus must be published at least one working day before the start of the offering to enable investors to evaluate the securities offered. Such a publication may be made in any nationwide newspaper, in a printed format, by newspaper notice stating where the printed prospectus is available, or electronically on the website of the issuer and the underwriter or the stock exchange. The public offering of securities without a prospectus is an offence subject to administrative fines (see question 20). In the case of debt securities and other non-equity securities including warrants, which are issued under an offering programme, a ‘base’ prospectus may be used. Such a prospectus will be valid for 12 months after its publication for public offerings or admissions to trading, provided appropriate supplements are prepared and approved thereafter.
Further, Commission Delegated Regulation (EU) No. 382/2014 supplemented Directive 2003/71/EC and sets forth a non-exhaustive list of when an issuer is required to publish a supplement to a prospectus. According to the delegated regulation, an issuer of equity securities or underlying shares in the case of depository receipts must publish a supplement to its prospectus:
- if new annual audited financial statements are finalised after the approval of the prospectus;
- if the issuer publishes an amendment to a profit forecast or estimate previously included in the prospectus;
- in the event of a change of control; and
- in the event of a new public takeover bid.
Additionally, an issuer must publish a prospectus supplement when:
- there is a change in the working capital statement;
- the issuer is seeking admission to regulated markets or intends to make a public offer in member states other than those previously listed in the prospectus;
- the issuer makes a new significant financial commitment that is likely to produce significant gross change; and
- the issuer increases the aggregate nominal amount of the offering.
When the Prospectus Regulation entered into force on 20 July 2017, the amendments to two exemptions, which release the issuer from the obligation to publish a prospectus under certain circumstances, became effective immediately. One exception to the prospectus obligation applies pursuant to article 1, clause 5, sub clause 1(a) of the Prospectus Regulation for securities that are fungible with securities already admitted to trading on the same regulated market, provided that they account for less than 20 per cent of the number of securities already admitted to trading on the same regulated market over a period of 12 months. A second exception applies pursuant to article 1, clause 5, sub clause 1(b) of the Prospectus Regulation for shares resulting from the conversion or exchange of other securities or from the exercise of rights attached to other securities, provided that they are shares of the same class as the shares already admitted to trading on the same regulated market and, if so, over a period of 12 months account for less than 20 per cent of the number of shares of the same class already admitted to trading on the same regulated market. With regard to the 20 per cent restriction, the subclause makes two exceptions: one for convertible and one for exchangeable bonds issued before 20 July 2017. As a result, a new prospectus will not be required for the admission to trading of shares resulting from conversion or exchange of securities if the resulting shares represent, over a period of 12 months, less than 20 per cent of the same class already admitted to trading on the same regulated market. The exemptions as mentioned under the Prospectus Regulations are also applicable under section 4, clause 2 of the WpHG.
In addition, there are further exemptions stated in section 4, clause 2 of the WpPG, in particular for:
- shares issued in exchange for shares of the same class admitted to trading on the same organised market without the issue of such new shares being accompanied by a capital increase;
- securities offered on the occasion of an acquisition by means of an exchange offer, provided that a document is available whose information is equivalent to that of the prospectus;
- securities offered or allocable or to be allocated on the occasion of a merger or split, provided that a document is available whose information is equivalent to that of the prospectus; and
- shares to be offered or allocated or to be issued to holders of the same class in the same organised market following a capital increase from corporate funds and dividends in the form of shares of the same class as the shares for which such dividends are distributed, if any document containing information about the number and type of shares and explaining the reasons and details of the offer is available.
On 21 July 2018, article 1, clause 3 and article 3, clause 2 of the Prospectus Regulation became effective. This provision exempts public offerings of securities with a total consideration in the EU of less than €1 million from a prospectus requirement with this threshold value being calculated over a period of 12 months. Article 1, clause 3, subclause 2 of the Prospectus Regulation allows the member states to stipulate other disclosure requirements on a national level for public offerings with a total consideration of less than €1 million to the extent that such requirements do not constitute a disproportionate or unnecessary burden.
Article 3, clause 2 of the Prospectus Regulation, furthermore, allows member states to exempt public offers from the obligation to publish a prospectus up to a total consideration of up to €8 million over a period of 12 months.
Hence, the Prospectus Regulation offers member states two options: below the threshold, they can lay down other proportionate disclosure requirements at the national level and not require a prospectus. It also gives member states the option of fully exempting offers of securities to the public not exceeding €8 million from the obligation to publish a prospectus. Notification is, of course, not possible in either case. In Germany, in particular, an amendment to the WpPG took advantage of both options to the extent that issuers offering securities to the public with a total consideration of between €100,000 and less than €8 million must draw up, file and publish a securities information sheet instead of a prospectus, as stated in section 3, clause 2 sentence 1 No. 6, section 3a and section 3c of the WpPG. Public offers of securities up to a total consideration of less than €100,000 are prospectus and WIB-exempt as mentioned in section 3, clause 2 No. 6 of the WpPG. By raising the prospectus obligation threshold to €8 million, as stated in section 3, clause 2 sentence 1 No. 6 and section 3a of the WpPG, legislators have ensured considerable liberalisation in order to promote Germany’s capital market.
The WIB is intended to serve investors as a source of information for their investment decisions. It may not be published until BaFin has granted approval. The approval procedure largely corresponds to that of the capital investments information sheet stipulated in the VermAnlG. The WIB may comprise no more than three pages and must clearly state the key information on securities, offerors, issuers and any guarantors in an easily comprehensible manner. Section 3a (3) sentence 2 of the WpPG contains a longer, albeit non-exhaustive, list of requirements. The WIB must also contain a warning to the effect that acquisition of the security involves considerable risks and can result in the total loss of the capital invested. It must also include a note stating that no prospectus approved by BaFin has been filed, as well as other information. The WIB is to be kept up to date and corrected, if necessary, for the duration of the public offer. The updated version is also to be filed with BaFin and published, although no new BaFin approval is required. Offerors should not be burdened with recurring approval costs.
Furthermore, according to section 3c of the WpPG, an offer of securities whose total consideration in the EEA is €1 million or more, which is to be calculated over a period of 12 months, shall be exempted from the obligation to publish a prospectus under section 3, clause 2 sentence 1, point 6, only if the securities are brokered solely by way of investment advice or investment intermediation through an investment services company that is legally required to consider whether the total amount of securities acquired by an unqualified investor may not exceed €1,000, or €10,000, provided that the respective non-qualified investor has freely available assets in the form of bank deposits and financial instruments of at least €100,000, subject to self-disclosure by him or her; or twice the amount of the average monthly net income of the non-qualified investor according to a self-assessment to be given by him or her, up to a maximum of €10,000. Article 3, clause 2 of the Prospectus Regulation, furthermore, allows member states to exempt public offers from the obligation to publish a prospectus up to a total consideration of up to €8 million over a period of 12 months. This exemption can be found in section 3, clause 2, No. 6 of the WpPG.
Further, a prospectus is not required for offers of securities to the public, which are limited to qualified investors. In addition, when an offer of securities is addressed to a restricted circle of (not qualified) investors (150 persons), no prospectus is required. Finally, when an offer is addressed simultaneously to qualified investors and to non-qualified investors that commit to invest at least €100,000 each, the offer is exempted from the obligation to publish a prospectus. As previously stated, these exempted offers will also not benefit from the passporting regime under the Prospectus Regulation. In addition, these exemptions only apply to public offers of securities. If the securities are also to be admitted to trading on a regulated market or a multilateral trading facility (MTF), an admission prospectus will still be required unless any of the exemptions applicable to such admissions apply.
Debt securities of CRR institutions (applies from 21 July 2019)
Effective as of 21 July 2019 the Prospectus Regulation will provide for a new exemption for the offer or admission of non-equity securities issued in a continuous or repeated manner by a credit institution, where the total aggregated consideration in the EU is less than €75 million calculated over a period of 12 months, provided that those securities are not subordinated, convertible or exchangeable; do not give a right to subscribe for or acquire other types of securities; and are not linked to a derivative instrument.
Universal registration document (applies from 21 July 2019)
Further, for issuers whose securities are admitted to trading on a regulated market or a multilateral trading facility (MTF), there will be a new form of registration. Once an issuer has a universal registration document approved by a competent authority for two consecutive years in place, it will be possible for this to be used as a constituent part of any future equity or debt prospectus and is therefore intended to simplify the process of issuing further securities. If an issuer has a universal registration document, subsequent universal registration documents can be filed or amended without prior approval (but subject to ex post review), and a prospectus using such universal registration documents benefit from a faster approval process (within five working days as opposed to the typical 10 business days). Moreover, the universal registration documents can be used in lieu of annual financial reports (if published within four months after the end of the year) or half-yearly financial reports (if published within three months after the end of the first six months of the year) required under the Transparency Directive. This allows frequent issuers to use a single annual disclosure document and save the cost and time of having to make duplicative public disclosures to the market.
Growth market (applies from 21 July 2018)
In addition, a new simplified disclosure regime will replace the current regime for pre-emptive offers. A simplified prospectus will be available for secondary offers where the issuer has had securities admitted to trading on a regulated market or a small and medium-sized enterprise (SME) growth market continuously for at least the last 18 months. Issuers other than SMEs that either: (i) have an average market capitalisation of less than €500 million over three calendar years with securities traded on an SME growth market; or (ii) are offering securities with a total EU consideration of less than €20 million over a 12-month period and do not have securities traded on an MTF, will be able to use a standardised EU growth prospectus in order to gain easier and more cost-efficient access to capital markets financing. Simplified contents requirements will apply to that prospectus, including information on the issuer’s organisational structure; the company’s strategy and objectives related to its development and future performance; the company’s management and business operations; financial statements and key performance indicators; and shareholders’ information.
Prospectus summary (applies from 21 July 2019)
The Prospectus Regulation brings in changes to the content and presentation of the summary contained in a prospectus. The summary must not exceed seven A4 sides of paper and must not include summaries of more than 15 risk factors (see below). Issuers now have more discretion over the information that they include, within a new presentation style that comprises four main sections: an introduction containing certain warnings; key information on the issuer including its key financial information; key information on the securities and any guarantors; and key information on the offer to the public or the admission to trading. The prohibition to incorporate information by reference into the summary applies in order to avoid the summary becoming a mere collection of hyperlinks and cross-references. No summary will be required for prospectuses relating to the admission to trading on a regulated market of non-equity securities that are accessible only by qualified investors or with a per unit denomination of at least €100,000.
Risk factors (applies from 21 July 2019)
Furthermore, the required content and format of risk factors changed under Article 16 of the Prospectus Regulation. The Prospectus Regulation requires risk factors to be categorised by their nature and presented in order of their ‘materiality’, which is assessed based on the probability of their occurrence and the expected magnitude of their negative impact. Among others, risk factors must include those resulting from the level of subordination of a security, the impact on the expected size or timing of payments to holders of the securities in the event of bankruptcy and, if there is a guarantee, the risk factors pertaining to the guarantor’s ability to fulfil its commitment under the guarantee. Because there is a tendency to include every risk, including generic risk factors (mostly serving as disclaimers), only those risk factors that are material and specific to the issuer are to be mentioned in the prospectus.
Incorporation by reference (applies from 21 July 2019)
Pursuant to Article 19 of the Prospectus Regulation, the information an issuer is able to incorporate by reference has been broadened, to include, inter alia, reports on the determination or the value of an asset or a company, management reports, corporate governance statements and remuneration reports. If included by reference, information needs to be available via hyperlink. Such documents may, from 20 July 2017, be published and made accessible online on the same electronic platform as the prospectus that refers to them.
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