On 6 April 2010, the existing two-tier segments of the UK listing regime were re-labelled premium and standard (rather than primary and secondary), and other related amendments were made to the Listing Rules. These amendments follow a review of the structure of the UK listing regime by the Financial Services Authority (“FSA”), with the aim of ensuring greater clarity of the regime’s structure and issuers’ obligations under it. The FSA is hoping that the changes will enable investors to make more informed investment decisions and enable issuers to have more flexibility over the route they wish to pursue to raise capital.
This article considers some of the key differences between the re-labelled premium and standard segments, including in relation to eligibility for listing criteria and continuing obligations. Where appropriate, it also considers some of the equivalent provisions in relation to AIM companies.
Segments and categories
As already mentioned, the existing two-tier segments of the listing regime have been retained, but have been re-labelled as premium and standard (rather than primary and secondary).
A premium listing denotes a listing with the more stringent super-equivalent standards. These standards exceed the requirements laid down in the EU Prospectus Directive and provide additional investor confidence, which in turn are considered to promote shareholder confidence. A standard listing denotes a listing that meets EU minimum standards.
These two segments will be further sub-divided into listing categories according to the characteristics of a security and the type of issuer.
- Categories for premium listings: equity shares (commercial companies), equity shares (closedended investment funds) and equity shares (open-ended investment companies)
- Categories for standard listings: shares (equity and non-equity), debt and debt-like securities, certificates representing certain securities, securitised derivatives and miscellaneous securities
The listing regime review has resulted in adjustments to the types of securities that are eligible for inclusion in some of the listing categories, some of which are considered below.
A UK company can now have a standard listing of its shares. This change (which was introduced on 6 October 2009) is aimed at creating a level playing field for all issuers. Before that date, only overseas companies could have a secondary listing (now relabelled as a standard listing), and UK companies either had to satisfy the “super-equivalent” standards of the premium listing category, or seek admission to trading on AIM.
Only equity shares are now eligible for the premium listing segment. Previously, all equity securities were capable of having a primary listing (now re-labelled as a premium listing). Apart from equity shares, equity securities also includes securities convertible into equity shares. As a result of this change, securities convertible into equity shares, preference shares and warrants can now only have a standard listing. Equity shares which had a primary listing before the rule change on 6 April 2010 but which do not confer full voting rights so do not qualify for a premium listing on 6 April 2010 may retain a premium listing until 31 May 2012.
Eligibility for listing
Whilst a prospectus is still required for a standard listing, there is no requirement to appoint a sponsor or nomad during the listing process. In contrast, a sponsor is required for a premium listing and a nomad is required for an AIM admission.
A full three years audited historical financial information is generally required for a premium listing. In the case of a standard listing or AIM admission, three years audited historical financial information is the starting point but a shorter period is acceptable where the full three years is not available. A three year revenue earning record is also generally required for a premium listing, but not a standard listing or AIM admission. The more relaxed requirements for a standard listing and AIM admission are less relevant to mineral companies, because even for a premium listing (or a primary listing, under the old regime), mineral companies have an exemption from the requirements for three years audited historical financial information and a three year revenue earning period.
In April 2010, the Committee of European Securities Regulators (“CESR”) published a consultation paper proposing amendments to the prospectus content requirements for mineral companies. A key proposal is to include a requirement for a competent persons report (“CPR”) for all IPO prospectuses, regardless of how long the issuer has been a mineral company. A CPR may also be required for further issues, but not where the issuer has previously published a CPR and has continued to update the market properly. However, a CPR would still be needed if the relevant prospectus sets out proposals to acquire significant new projects or where there has been other material change, but the CPR would only have to relate to the projects concerned. Currently, a CPR is only needed in the case of an IPO, and then only where the issuer has not been a mineral company for at least three years. CESR is also proposing CPR content requirements and competence and independence provisions (currently the content of the report is a matter for the competent authority in the relevant member state, rather than prescribed at a European level).
CESR’s other proposals include to replace the existing requirement for a cash flow forecast with a new requirement to expand the use of proceeds section of the prospectus where new funds are being raised to finance exploration or development, and to clarify which reporting and valuation standards may be used.
The continuing obligation requirements which apply to a standard listed company are not generally as onerous as those which apply to a premium listed company or an AIM company.
Companies with a premium listing have to “comply or explain” against the UK Corporate Governance Code (the successor to the UK Combined Code). This requirement now applies to all companies with a premium listing, including overseas companies. Before the rule changes, the requirement for overseas companies was to disclose whether the company complied with the corporate governance regime of its country of incorporation, and explain the significant ways in which its actual corporate practices differ from those set out in the UK Combined Code. For an overseas company with a premium listing at the time of the rule changes (i.e. 6 April 2010), the new requirement will only apply in respect of financial years beginning after 31 December 2009. Companies with a standard listing and AIM companies do not have to comply or explain against the UK Corporate Governance Code, although investors do expect AIM companies to adopt some form of corporate governance standard.
All listed companies with shares or GDRs listed now have to comply with the EU Company Reporting Directive (as implemented in Disclosure and Transparency Rule 7.2). Broadly, this includes a requirement to provide a corporate governance statement and to describe the main features of their internal control and risk management systems. Overseas companies need only comply with this requirement for financial years beginning after 31 December 2009. AIM companies do not have to comply with this Directive.
All premium listed companies (including overseas companies) will have to offer pre-emption rights to their existing shareholders when they make an offer for cash unless they have received shareholder approval to disapply pre-emption rights. Overseas companies with a premium listing at the time of the rule changes will not be required to comply with this requirement until 5 April 2011, allowing them time to make any changes to their constitutional documents necessary to effect this requirement at their next annual general meeting. Whether companies in the standard segment, and AIM companies, will have to offer pre-emption rights to their existing shareholders is a matter of domestic law (and, to an extent, what is considered desirable from a marketing perspective).
Standard listed companies will not be required to seek shareholder approval for significant or related party transactions. In comparison, premium listed companies and AIM companies do need shareholder approval for certain transactions. This may make a standard listing more attractive to companies who are looking to make significant acquisitions.
An issuer which is not an issuer with a premium listing of its equity shares must not describe itself or hold itself out as having a premium listing, or make suggest that it has a premium listing or complies or is required to comply with the premium listing requirements.
Migration between segments
One major limitation of AIM since its inception has been the inability for companies to step-up easily to the main market. This remains the case. If an AIM company wants to migrate to the main market, it must go through the usual process, including publication of a prospectus – there is no “fast track” procedure for AIM companies to step-up to the main market.
However, a new procedure has been introduced which will enable a company to move from a standard listing to a premium listing. A company wishing to move from a standard to a premium listing will not have to produce a prospectus unless it is also offering shares to the public.
There is also a new procedure which will enable a company to move from a premium listing to a standard listing. Among other things, this will need shareholder approval. This approval is considered necessary on the basis that the company will be subject to less stringent reporting requirements and investor protection regulations as a result of migrating to a standard listing.
For UK companies, the new regime represents a de-regulatory move and offers a tempting alternative to AIM in the form of a standard listing (which was previously only available to overseas companies). To some extent the appeal of a standard listing to a UK issuer will partly depend on its aspirations as well as investor attitude. Issuers may be concerned that if they opt for a standard listing of their shares, they will not be eligible for inclusion in the UK series of the FTSE indices.
Overseas companies continue to have the choice between a premium listing and a standard listing, as well as AIM. However, overseas companies with a premium listing are likely to be subject to more onerous requirements in the form of increased corporate governance requirements (which may lead to a re-assessment of board structures) and the prospect of mandatory pre-emption rights. This may lead overseas companies with a premium listing to consider migrating to the less regulated standard category.