In May 2009, the UK Listing Authority published the 21st edition of LIST! This edition covers a range of topics including those set out below.
Property valuation reports in prospectuses
The FSA comments that it has received a number of queries on how up-to-date property valuation reports included in prospectuses should be. The CESR guidance in respect of property companies does not explicitly state how recent the report should be, allowing the valuation to be up to a year old, providing the issuer can confirm that there has been no material change since the date of the report. Recent market conditions have presented difficulties in that commercial property values were believed to be dropping so rapidly that almost any valuation report would be out-of-date by the time it was completed. As a result, no issuer could ever give a "no material change" statement. The FSA has agreed that, in these highly volatile property markets (and only while these conditions last), issuers who cannot make a "no material change" statement can instead confirm in the document that the effective date of the valuation is the latest practicable date prior to the publication of the prospectus (but the FSA has indicated that it will strongly challenge any valuation which is more than six weeks old).
Risk factors in prospectuses
The FSA has included a reminder of the type of risk factors that are required under the Prospectus Rules together with an outline of its approach to vetting the risk factors sections of prospectuses. The FSA emphasises that risk factors should be specific to the company, its industry and should be relevant to the type of securities being offered. In its view, there has been an increasing tendency for risk factors sections to include more generic, standardised risk factors which do not appear to be directly relevant for the company or the types of securities being offered. The FSA considers that issuers are best placed to assess risks and, as such, its general approach is not to routinely request that risk factors are substantially re-drafted or removed. However, the FSA will challenge risk factors in certain situations, for example:
- where disclosures conflict with or undermine other rule requirements;
- where disclosures conflict with an issuer's eligibility for continuing obligations;
- where disclosure is contradictory to the Listing Principles;
- where sufficient prominence is not given to material risks;
- where there is disclosure elsewhere in the document that seems to clearly present a risk to the issuer which has not already been disclosed in the risk factors section; and
- where the risk factors are simply statements of fact that contain no explanation of the risk in the context of the issuer's business or the issue of securities in question.
The FSA also suggests that risk factors should be grouped together in a coherent manner and that risk factors considered to be of the greatest or most immediate significance should be given due prominence at the beginning of each section or group within the risk factors section.
Principles for sponsors: identifying and managing conflicts
The FSA has discussed with a number of sponsor firms the practical application of the principle contained in LR 8.3.7AG which requires sponsor firms to identify and manage conflicts. The FSA sets out some key points arising from those discussions focussing on the ability of a sponsor to carry out its role on a transaction in a proper manner where the sponsor or its group has an interest in an issuer, particularly where the issuer (i) is in financial distress and the transaction has a rescue element or (ii) is taking pre-emptive action with regard to its current financing structure.
Further consultation on rights issues
The FSA summarises the actions that have already been taken to implement the recommendations of the November 2008 report of the Rights Issue Review Group (RIRG). (The RIRG was set up by the Chancellor of the Exchequer in summer 2008 to examine and report on measures which could be taken to make equity raising more efficient and orderly.) The FSA states that it intends to issue a consultation paper later this year addressing the remaining issues identified in the RIRG report. The consultation paper will cover:
- compensatory open offers which will provide compensation for non-accepting shareholders;
- accelerated rights issues which allow funds to be raised from institutions on an accelerated timescale with other shareholders participating on a conventional timescale; and
- whether a satisfactory framework can be put in place for conditional rights issues.
Interim Management Statements: a review
The FSA has carried out a review of Interim Management Statements (IMS) to assess, among other things, compliance with the requirement to produce an IMS. The FSA's review found that a significant number of issuers across the market are still failing to produce an IMS, either at all or within the required timeframe. In addition, there are a number of areas where specific IMS content requirements are not being met, including the requirement to provide a general description of financial performance and financial position and an explanation of the impact of material events on financial position.
Overall, the FSA considered that there has been reasonably good progress towards a market-led approach to meeting the IMS requirements. The FSA considers that issuers are best placed to consider the approach that they should take to meeting their IMS obligations and that it does not believe it should take a more prescriptive approach. That said, enforcement action could be taken against companies that fail to meet their IMS obligations. The full article can be viewed in the annex to LIST! 21.
The remaining topics covered by LIST! 21 are:
- timetables for investment trust rollovers;
- portfolio analyses to be included in prospectuses of collective investment undertakings;
- transferring officially listed securities from a regulated market to a multilateral trading facility;
- the FSA's recent proposals for the segmentation and labelling of officially listed securities; and
- the application of LR 6.1.19R(4)(e) (Shares in public hands) in light of changes to the DTR 5 regime (Vote holder and issuer notification rules).
View LIST! 21 (13 page pdf).