Second tranche – finally in force

On 22 September 2012, the final version of the Commission Delegated Regulation 862/2012 (the CDR) to amend Regulation 809/2004 (the Prospectus Regulation) was published in the Official Journal and took effect from that date. Two of the amendments to the Prospectus Regulation relate to:

  • the consent to use of the prospectus in a retail cascade; and
  • the requirement for a report prepared by independent accountants or auditors in connection with profit forecasts and estimates.

All of the proposed amendments set out in the Amending Directive (2010/73/EU) to the Prospectus Regulation are now directly applicable in the UK.

The amendments set out in the CDR (which was originally intended to be brought into force on 1 July 2012 but delayed due to the right of the European Parliament and the Council to raise objections within a certain period) follows the other amendments brought into force on 1 July 2012 relating to the format and content of the prospectus, the base prospectus, the summary, and certain disclosure requirements set out in another Commission Delegated Regulation (486/2012). These changes introduced, amongst other things, the "proportionate disclosure regime" for certain rights issues, and IPOs by SMEs and companies with smaller market capitalisations (see our July newsletter article for more information and a link to our proportionate disclosure checklist).

Summary of CDR amendments

Retail cascades

Financial intermediaries placing or subsequently re-selling an issuer's securities are entitled to rely on the initial prospectus where the issuer has given written consent to its use for the purpose of the current offer.

In all cases where consent is given, there is prescribed disclosure required for inclusion in the prospectus which includes, amongst other things: an express consent and appropriate responsibility statements for the content of the prospectus; an indication of the consent period and offer period for the sale or placement of securities; the Member States in which financial intermediaries may use the prospectus; and any conditions which are attached to the consent.

Where a financial intermediary does not comply with the conditions attached to consent as disclosed in the prospectus, a new prospectus will be required.

Any effect on the market?

These amendments are in line with the overall aim of the Amending Directive to alleviate administrative burdens for both issuers and financial intermediaries. Further, the prescribed consent requirements seek to provide sufficient legal certainty (particularly, in relation to liability) and protection for investors, issuers and financial intermediaries. Retail cascades of equity have been occasionally used and it will be interesting to see whether these amendments will have an effect on issuers pursuing such distributions in the coming months although the likelihood of their use will depend on whether the company feels that the benefits of obtaining a larger retail shareholder base outweigh the ongoing costs associated with this.

Reports on profit forecasts and estimates

The CDR amends relevant Annexes to the Prospectus Regulation to provide that where a report is required on a profit forecast or estimate, the report will not have to be produced where:

  • the financial information relates to the previous financial year and only contains non-misleading figures substantially consistent with the final figures to be published in the next annual audited financial statements for the previous financial year, and the explanatory information necessary to assess the figures; and
  • the prospectus includes all of the following statements:
    • the person responsible for the financial information, if different from the one which is responsible for the prospectus in general, approves the information;
    • independent accountants or auditors have agreed that the information is substantially consistent with the final figures to be published in the next annual audited financial statements; and
    • the financial information has not been audited.

Significant change?

Clearly, issuers will be keen to know that they are not obliged to draw up reports on profit forecasts and estimates where they have readily available access to recent financial information. This will avoid duplicate work for auditors which will reduce costs for an issuer and will not affect the deal timetable. In practice however, an issuer will wish to instruct its auditors to carefully verify that such financial information contains only non-misleading figures substantially consistent with the final figures to be published in the next audited financial statements for the previous financial year, which may still require significant work and therefore offer no real advantage to the issuer.