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Initial public offerings
What are the most common structures used for IPOs in your jurisdiction, and what are the advantages and disadvantages of each?
Issuers use mostly the book-building method, albeit some initial public offerings (IPOs) have been carried out by way of an auction on the Bulgarian Stock Exchange JSC (BSE). The book-building method tends to be preferred by issuers as it offers the possibility of achieving relatively higher prices of the IPO shares. The book-building procedure still requires a careful design in order to ensure fair treatment of all participating investors in the allocation of the offered shares.
Procedure and timeframe
What is the procedure and typical timeframe for launching an IPO?
Unless exemptions apply, an IPO requires a prospectus according to the Public Offering of Securities Act and the Prospectus Regulation. The prospectus should be approved by the Financial Supervision Commission (FSC). After approval, a notice for the public offer should be published stating the terms and conditions of the IPO. The notice must be published at least in one national newspaper or on the website of an information agency or other eligible media, as well as on the website of the issuer and the IPO managers. Publication must take place at least seven days before the start of the IPO. The notice publication requirement will not apply after 21 July 2019, when the EU Prospectus Regulation becomes fully effective. The prospectus must be published by:
- publication in the press;
- making printed forms available to potential investors at the offices of the issuer and IPO managers; or
- publication in electronic form on the website of the issuer and IPO managers.
After the IPO has been completed, the new securities must be registered with the Commercial Register and the Central Depository. Subsequently, the new securities must be registered with an FSC register and are eligible for admission to trading on the BSE. Typically, it takes six to seven months for completion of an IPO project.
What due diligence is required and advised in the IPO process?
Bulgarian law poses no explicit requirement for the carrying out of due diligence of the information included in the IPO prospectus. However, practice has gradually evolved towards due diligence processes by external advisers (eg, legal, tax or technical), acceptable to IPO managers. In the context of Bulgarian law, such checks will reduce any potential risks of claims by investors against the issuer or the IPO managers arising out of deficiencies in the prospectus.
Pricing and allocation
What rules and standards govern share pricing and allocation in the context of an IPO?
The IPO managers must comply with the requirements for pricing and allocating offered securities pursuant to Articles 38 to 43 of EU Regulation 2017/565. Before taking the mandate, the managers must inform the issuer of the targeted investors to which they will offer the equities and introduce internal rules and procedures aiming to prevent or manage any potential conflict of interests (eg, to prevent any under-pricing or over-pricing to promote interests of the managers’ other clients or their own interests and to prevent unlawful practices of allocating the offered securities, such as spinning or laddering). The IPO managers must provide the issuer with information about the pricing techniques that they intend to use. They must also adopt an allocation policy. This policy should be provided to the issuer before the managers receive the mandate. The managers must discuss with the issuer the placing process and obtain the issuer’s consent for the proposed allocation per type of client in accordance with their allocation policy.
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