Private placings

Specific regulation

Are there specific rules for the private placing of securities? What procedures must be implemented to effect a valid private placing?

As a basic description, an offer to the public is an offer directed at the general public, which means an offer that targets an unlimited number of potential investors. In contrast, a private placement of securities (debt and equity) requires, for example, a personal relationship between the issuer and the actual investor prior to the offer. Hence, Germany has broad exemptions from disclosure requirements for sales to sophisticated investors or to market professionals. An offer is not deemed to be an offer to the public (and therefore no prospectus is required) if it is made only to certain categories of investors. The key exemptions (some of which may be combined) in this regard are in accordance with section 3, clause 2 of the WpPG and include offers:

  • solely addressed to qualified investors (defined as professional investors in line with the definition under MiFID);
  • addressed to fewer than 150 individuals or legal entities (other than qualified investors) per EU or EEA state;
  • addressed to investors who acquire securities for at least €100,000 per investor with respect to each separate offering of securities;
  • where the minimum denomination per unit amounts to at least €100,000; or
  • where the total consideration for all offered securities in the EEA is less than €8 million over a period of 12 months.

Pursuant to section 1, clause 2 No. 4 of the WpPG, there is no prospectus requirement where non-equity securities issued by CRR credit institutions for a total consideration of less than €75 million of securities offered in the European Economic Area for a period of 12 months, provided such securities are (i) not subordinate, convertible or exchangeable; or (ii) not entitled to subscribe or acquire other securities and are not linked to a derivative.

Further, under section 4, clause 2 of the WpPG, an issuer is not required to publish a prospectus for securities admitted on a regulated market if the securities being issued are exempt, in particular but not limited to:

  • shares representing, over a 12-month period, less than 10 per cent of the number of shares of the same class already admitted to trading on the same regulated market;
  • shares being offered in exchange for shares of the same class already admitted in the same regulated market, provided that a document is available containing information that is equivalent to that of a prospectus; and
  • shares issued after the exercise of conversion or subscription rights from other securities, provided that they are shares of the same class as the shares already admitted to trading on the same regulated market.
Investor information

What information must be made available to potential investors in connection with a private placing of securities?

In the case of a private placement of securities, there are no specific statutory requirements for any information to be provided to potential investors. However, if the issuer is providing potential investors with information, such private placement documents might be expected to contain, in an understandable manner, all information necessary to enable investors to make an informed assessment of the issuer’s assets and liabilities, financial situation, profits, losses and future prospects and the rights attached to the securities. Further, it should include warning notices, essential information about the securities, and statements by the responsible persons. In relation to minimum requirements, Commission Regulation (EC) No. 809/2004 as amended and section 5 of the WpPG can, therefore, be used in an analogous manner. Further, if an issuer does not make use of an exemption under section 3, clause 2, 3 or section 4 of the WpPG and prepares an informational document, such document will be regarded as a prospectus and the WpPG and other rules will apply.

Transfer of placed securities

Do restrictions apply to the transferability of securities acquired in a private placing? And are any mechanisms used to enhance the liquidity of securities sold in a private placing?

There are no statutory provisions that apply especially to the transferability of securities (debt and equity) acquired by investors through a private placement. If the exceptions stated in the WpPG (as outlined in question 7) apply and the securities are admitted to trading on the stock exchange, the related securities can be traded on the stock exchange in accordance with the applicable laws and regulations of that stock exchange. Where such securities are not admitted to trading, it should be noted that in the issuer company’s articles of association the transferability of securities may also be defined, and such articles may restrict the transferability of such securities. Further, there are no mechanisms in place to enhance the liquidity of securities in a private placement.