European Commission introduces plan  to build a Capital Markets Union.

On 18 February 2015, the European Commission launched a consultation with the purpose of creating a true single market for capital - a Capital Markets Union - for all EU Members States by 2019.

The objectives of the Capital Markets Union are, amongst others, to ensure greater diversification in the funding of the economy and reduce the cost of raising capital, in particular for SME's.

The key matters on which the Commission seeked views through its Green Paper on Building a Capital Markets Union and which may have an impact on listed companies include:

  • identifying the main obstacles to integrate capital markets arising from company law - including corporate governance - and whether there are targeted measures which could help overcome them
  • elaborating mechanisms to improve the functioning and efficiency of equity markets
  • identifying whether there are areas where the single rulebook remains insufficiently developed
  • determining whether the powers of the European Supervisory Authorities are sufficient to ensure consistent supervision
  • identifying whether there are targeted changes to securities ownership rules that could contribute to more integrated capital markets within the EU

The consultation closed on 13 May 2015. Based on responses received, the Commission intends to adopt an action plan later in 2015, setting out the actions to be carried out over the next five years.

Useful tip

The European Securities and Markets Authority (ESMA) published on 02 March 2015 an overview of all guidelines and technical standards. This overview shall be updated on a regular basis. With respect to listed companies it includes amongst others guidelines and technical standards relating to the Transparency Directive and the Prospectus Directive.  This overview is available at following site: click here .

Review of the Prospectus Directive

1.   The public consultation by the European Commission

Alongside the Green Paper on Building a Capital Markets Union, the European Commission has launched a consultation on a review of the Prospectus Directive (2003/71/EC).

The objective is to review the current prospectus regime to make it easier for companies to raise capital throughout the EU and to lower the associated costs. The Prospectus Directive also needs  to be updated to reflect market and regulatory developments. This includes the development of multilateral trading facilities (MTFs) and the introduction of the Regulation on key information documents (or KIDs) for packaged retail and insurance-based investment products PRIIPs) (Regulation 1286/2014).

In the months following the consultation, the Commission will decide how  the  Prospectus  Directive  can  be  amended.  The  legislative proposals are expected in the second half of 2015. The legislative proposals will be presented to the European Parliament and Council  in early 2016 at the latest.

The fundamental aspects of the Prospectus Directive under review re grouped under the following headings:

A. When a prospectus is needed?

The  consultation  requests  respondents'  views  on:  (i)  a  possible recalibration of the obligation for issuers to draw up a prospectus, based on the existing exemption thresholds, (ii) the favourable treatment granted to debt issuers using high denominations per unit, and (iii) whether a prospectus should be required for secondary issuances and for the admission of securities to trading on MTFs.

B. What information should a prospectus contain? 

The consultation seeks feedback on: (i) ways to expand the existing tools that were intended to introduce some flexibility in the drawing up of a prospectus, (ii) ways to enhance their effectiveness to the benefit of the issuers, while maintaining effective levels of consumer and investor  protection,  (iii)  ways  to  introduce  more  flexibility  in  the process  of  raising  capital  by  clarifying  the  relationship  in  the prospectus approval process with the marketing phase, and (iv) to avoid the tendency towards lengthier prospectuses and return to the original purpose of a prospectus, views are sought on the usefulness of the prospectus summary, as well as on possible limitations which could be introduced on prospectuses. As the length of a prospectus is to a certain extent linked to the liability incurred by those who prepare it, the question of the liability regime is raised, as well as the  sanctions regime.

C. How prospectuses are approved?

The consultation requests respondents' views on the role of national competent authorities in the approval process of prospectuses and the equivalence of third-country prospectus regimes. The consultation period runs until 13 May 2015. On the basis of the responses received, other feedback and its own analysis, the European Commission will then determine how to amend the Prospectus Directive.

2.   ESMA's response

In the meantime ESMA has already published a response to the European Commission consultation. It recommends an approach that facilitates access to capital while maintaining a robust level of investor protection. It considers that the prospectus should be more comprehensible, focusing on the actual purpose of the prospectus while reducing the burden on issuers where possible. It is, amongst other things of the opinion that, trading venue neutrality should be a leading principle, that summaries should be shorter and the content more flexible and that secondary issues should be less burdensome.

Euronext promotes bond listing

On  13 March 2015,  Euronext launched the Euronext Private Placement Bonds ("EPPB") initiative. The EPPB initiative is an extension of Euronext's existing bond offer to Alternext's markets. It is designed for all types of companies, particulary small and mid-size companies and supports the development of private placement bond products (Euro PP, High Yield, other private placements). EPPB aims at facilitating the listing of private placement bond issues on Alternext using a simplified procedure that shall  also be more  attractive in terms of cost. As such, accounting requirements, financial reporting and monitoring requirements have been adapted to reflect their needs.

Simplified procedure for delisting

Where  a  company  listed  on  the  regulated  market  of  Euronext Brussels  or  on  Alternext  intends  to  delist  its  securities,  it  has  to address a request in this respect to Euronext, which shall consult the FSMA. The FSMA may, in consultation with Euronext, oppose the delisting in order to protect the investors.

In this context, the FSMA ensures that the delisting is accompanied by measures allowing shareholders to exit, at a correct price, for example via a takeover bid. Yet, for companies with a very low free float or market capitalisation, the costs of a takeover bid procedure is disproportionate compared to the value of the free float.

The FSMA has therefore introduced a simplified procedure allowing to delist securities without launching a takeover bid.

This simplified procedure is open for companies listed on Euronext Brussels  or  Alternext,  whith  an  effective  free  float  (based  on transparency declarations and shareholders declarations) or a market capitalisation of less than 500,000 EUR on Euronext Brussels or 250,000 EUR on Alternext.

In accordance with this simplified procedure, these companies have to call for an extraordinary meeting and propose a resolution aiming at  requesting  the  delisting  of  its  shares  to  Euronext  Brussels.

The company has to communicate to the FSMA the attendance list to the general meeting as well as the voting results on the relevant resolution.

Based on this information, the FSMA shall give an opinion on the delisting request. If this opinion is favourable, companies for which the articles of association provide for the possibility to buy-back its own shares are invited to do so during a minimum two months period. At   the   end   of   this   period,   the   delisting   shall   be   effective.

After the delisting, these companies shall also commit to disclose to the market any significant information so that the remaining holders of shares would still benefit from a minimum level of information allowing them to negociate, as the case may be, their securities on the public auctions market.

One Belgian company - Newton 21 - has used this simplified procedure in 2014 to delist its securities.

What if a remuneration report is rejected

In accordance with Articles 96 and 526quater of the Belgian Company Code, a remuneration report shall be prepared by the remuneration committee of a Belgian listed company as part of the corporate governance statement included in its annual report. The remuneration report has to be approved by a separate vote given by the    annuall    meeting    of    shareholders    of    that    company.

As part of the 2015 season of annual meetings, the annual meeting of a listed company has voted against the approval of the proposed remuneration report.

As  the  rejected  remuneration  report  includes  information  which reflects legally binding commitments that have already been taken by the company, the remuneration report cannot be changed anymore. This means that such rejection by the annual meeting does not affect the remunerations which have already been granted nor any vested right on remuneration.

The board is nevertheless expected to take into account the rejection of the report for the determination of its future remuneration policy.

Information requirements when commercialising financial products to retail clients

On 12 June 2015, part of the Royal Decree of 25 April 2014 on certain information requirements governing the commercialisation of financial products to retail clients (the "Marketing Royal Decree") has entered into force.

As a reminder, the Marketing Royal Decree introduces amongst others (i) a general obligation to distribute an "information brochure" when commercialising financial products to retail clients, and (ii) regulates the content and presentation of advertising of financial products for retail investors.

The provisions of the Marketing Royal Decree apply transversally to any marketing of financial products (subject to certain exceptions) which are commercialised in Belgium to retail clients. In this respect, 'marketing' is defined very broadly as the presentation of a financial product, in any manner whatsoever, in view of encouraging an existing or potential retail client to buy, subscribe, adhere, accept, sign or open a financial product.

The provisions of the Marketing Royal Decree apply in addition to the relevant provisions of other applicable regulations  (ie.  Prospectus Law and UCITS Law). They apply to both public offers and private placements (subjet to certain exceptions such as a minimum investment amount of 100,000 EUR).

The Marketing Royal Decree was due to enter into force in its entirety on 12 June 2015. However, the entry into force of Tilte 2, articles 10, 12, §1, 4°, c), 14, 22, e), 23 and Exhibits A and B has been postponed sine die, in order for it to coincide with the entry into force of the European regulation on PRIIPS.

In brief, this means that the entry into force of the main following obligations was postponed sine die:

  • the obligation to establish an information brochure (Title 2);
  • the obligation to present a risk label on advertising materials with respect to financial products (Art. 12, §1, 4°, c));
  • where the future performance of financial products is linked to the evolution of one or several underlying assets, the obligation to exclusively present this performance through a simulator made available to the clients on an internet website (Art. 22, e)).

The other obligations set forth by the Marketing Royal Decree are applicable since 12 June 2015.

Article 33, §3 of the Marketing Royal Decree has also been modified to limit the relevant transitional period. Advertising materials and documents already distributed before the entry into force of the Marketing Royal Decree (i.e.12 June 2015) may still be used even if they do not meet the Marketing Royal Decree requirements, but until 1 January 2016 only.

Abolition of bearer securities - last call

Listed issuers have until 30 November 2015 to sell bearer securities held by unidentified investors on the regulated market or MTF on which the securities are admitted to trading.

The net proceeds from such sales and the securities which were not sold as of 30 November 2015 must be deposited with the Deposits and Consignment Fund (Caisse des dépôts et des consignations / Deposito and consignatikas) by no later than 31 December 2015.

No earlier than on 1 January 2016 (the exact starting date will be determined at a later stage), rightful owners will be entitled to request restitution of the net sales proceeds or unsold securities after  payment of a fine.

Useful tip

On 23 February 2015, the Financial Services and Markets Authority (FSMA) published a study on the disclosure of information on related parties in the annual financial reports of listed companies. The study shows that the majority of the companies publish extensive information on relations and transactions with related  parties. However, as such information is often located in various sections of the annual financial report, it can be hard to understand for  the reader. For this reason, the FSMA advises listed companies to pay special attention to the coherence and structure of the information with respect to related parties contained in their annual reports and issues specific recommendations for that purpose in its study.

The study is available at following site: click here.

For follow-up

  1. At the European level
    • The legal Affairs Committee MEP's backed a draft law empowering shareholders to vote on directors' remuneration, so as to ensure proper transparency and tie their remuneration more closely to their performance. In addition, it requires some large companies to be required to disclose, country by country, information on tax rulings, taxes paid and public subsidies received. 
    • On 3 February 2015, the European Securities and Markets Authority (ESMA) has published its technical advice regarding the new Market Abuse Regulation (MAR). This document shall be sent to the European Commission for its consideration in drafting the delegated acts required by some provisions of the MAR. The delegated acts should be adopted by the Commission so that they enter into force 24 months after the entry into force of the MAR.  
  2. On a Belgian level

The following legislative proposals were introduced by the opposition, without evidence of the government backing it:

  • proposal to amend the Belgian Company Code to introduce the obligation for listed companies to draw up a social report,
  • proposal to amend the Belgian Company Code to restrict and justify the variable remuneration of company officers,
  • proposal to amend the Belgian Company Code regarding disclosures on differences in remuneration

The following legislative proposal was introduced by a governmental party:

  • Proposal to introduce an employee bonus scheme when the management is awarded a high variable remuneration.

Strong semester for our Capital Markets team

Activities on the stock markets and bond markets in Europe have been  important  during  the  first  half  of  2015.  This  has  continued despite  the  volatility  in  May  and  June  2015  and  uncertainties regarding  Greece.  IPO  activity  is  still  important  and  the  trend  of NASDAQ listings  of  European  biotechs  is  strengthening,  with  the listing of two Belgian/Dutch biotechs in the US over the last months. Our team has been very active during that period, confirming that issuers are back in the market for equity transactions.

Deals for Belgium included:

  • assisting Galapagos (biotech, Euronext Brussels and Euronext Amsterdam) with its EUR 279mio initial public offering and listing of American Depositary Shares (ADSs) on NASDAQ and its private placement in Europe through an accelerated bookbuilding. Galapagos is the first Belgian biotech to seek a US listing;
  • assisting Kempen & Co, KBC Securities and Peel Hunt as underwriters in the EUR 32mio IPO of Kiadis Pharma on Euronext Amsterdam and Euronext Brussels. Kiadis Pharma is a clinical stage biopharmaceutical company developing innovative cell-based immunotherapy treatments;
  • assisting Cofinimmo (REIT, Euronext Brussels) on a EUR 285mio secondary public offering of shares, by way of rights issue;
  • assisting Petercam, Belfius and KBC Securities as underwriters in the EUR 38mio secondary public offering of Care Property Invest (REIT, Euronext Brussels). This is the first equity offering by way of priority allocation in favour of existing shareholders by a Belgian REIT;
  • assisting Quares Student Housing (real estate company) with its public offering and private placements of shares;
  • assisting Goldman Sachs International in connection with the offering of structured products in the Netherlands and Belgium, including Turbos and Traders;
  • assisting Solar Chest and its main shareholder (Ecetia Intercommunale) with the EUR 275mio issuance of secured bonds to finance the acquisition of green certificates issued in Belgium. The bond issue was arranged by Bank Degroof. It is the first ever bond issue in Belgium backed by green certificates; and
  • assisting Cofinimmo with its EUR 190mio wholesale bond issue, arranged by Bank Degroof.