New prospectus law
New Prospectus Regulation to facilitate initial public offering
Especially for small and medium-sized enterprises (SMEs) the leap onto the stock exchange is often associated with great personnel and financial efforts. In particular, a securities prospectus must be prepared in order to be able to make a public offer for securities and to obtain their admission to stock exchange trading in a regulated market. The prospectus contains detailed information on the business model, strategy, market conditions, opportunities and risks as well as the offer. In the course of the new prospectus law in the EU, the regulations are now being further eased.
According to the latest EU Prospectus Regulation, the amendments to the German Securities Prospectus Act (WpPG) as of 21 July 2018 provide that issues of shares of up to eight million euros per year are exempt from the prospectus requirement. This applies to an offer of securities in the European Economic Area. Instead of a prospectus, it is therefore mandatory for issuers to prepare a so-called securities information sheet. This information sheet must not be longer than three A4 pages and must contain all essential information on the type and functioning of the securities, the issuer and its business activities or the specific offer conditions. At the same time, the Securities Prospectus Act defines certain investment thresholds for “non-qualified investors”, i.e. private individuals, for prospectus-free issues with a total value of EUR 1 million or more. According to the law, the total amount of securities acquired by a private individual must not exceed EUR 1,000; even with freely available assets of at least EUR 100,000, an investment of a maximum of EUR 10,000 is possible. The initiative (available in German) of the “Interessenverband kapitalmarktorientierter kleiner und mittlerer Unternehmen e.V.” shows that there is opposition in capital market circles. The general accusation is that the actual easing in European prospectus law will again be considerably restricted.
Another important innovation for SMEs is the introduction of the EU Growth prospectus. Issuers meeting two of the following three criteria may use this new prospectus. The average number of employees in the last financial year must have been less than 250, the balance sheet total must not exceed EUR 43 million and the annual net turnover must not exceed EUR 50 million. The new regulation is also intended to make life easier for issuers of secondary issues in future, for example by requiring only a simplified and abridged prospectus in the event of a capital increase. However, the exact disclosure rules must be observed. It is therefore a central requirement that the securities of the issuer have been admitted to trading without interruption for the last 18 months.
Henryk Deter, CEO at cometis AG, explains: “Having accompanied numerous securities issues in recent years, we know all too well that an IPO can be a real feat for small and medium-sized companies. We therefore welcome all the more the efforts to ease disclosure and listing requirements, particularly for smaller IPOs and secondary issues. Nevertheless, the securities prospectus remains an important document for IPOs and bond issues, in which all essential information on a security should be available to interested investors”.