In brief: IPO governance in Romania

Market overview

What is the size of the market for initial public offerings (IPOs) in your jurisdiction?

After recommencing its activity in 1995, Bucharest Stock Exchange (BVB) has displayed consistent growth. At the end of 2017, BVB absorbed Sibex, another stock exchange market, organised in Sibiu, Romania, and now remains the only regulated market locally. In 2019, BVB was promoted to ‘emerging market’ status by FTSE Russell.

The latest notable equity deals on the Romanian market are IPOs, including: in 2021 a €52 million offering by One United Properties SA and an €58 million offering by Transport Trade Services; in 2018 a €40 million offering by Purcari Wineries Public Company Limited; in 2017 an €62 million offering by Digi Communications NV and an €207 million offering by Sphera Franchise Group SA; in 2016 a €50 million offering by MedLife Sistem Medical A.

As at April 2022, the market values of domestic companies listed on BVB is 143.7 billion Romanian leu, equivalent of over €29 billion.

Who are the issuers in the IPO market? Do domestic companies tend to list at home or overseas? Do overseas companies list in your market?

The main body of issuers on the Romanian IPO are usually domestic companies that want to consolidate and expand their position on the market. The actors are based in the banking sector, energy and retail. In fact, since 2010, BVB is also present on the market as an issuer. In contrast, since 2008 the Austrian Erste Group Bank has been present on the marker, being a stable key figure and setting an example for both domestic and foreign investment companies and bank to act on the market.

Domestic companies have a limited role on outside markets, the main field of activity being the energy and resource sector. In this case, as of 2013 Romgaz SA has been present on the London Stock Exchange, and also Electrica SA as of 2014.

What are the primary exchanges for IPOs? How do they differ?

BVB includes the main market, which is a regulated market in line with European Directives, dedicated to joint stock companies with a minimum of €1 million anticipated market capitalisation and at least three years’ history of financial reporting.

Additionally, BVB operates an alternative market, the AeRO Market, dedicated to small and medium-sized enterprises that meet the criteria of joint stock company with a minimum market value or equity of €250,000 and a minimum number of 30 shareholders or 10 per cent of shares in investors’ portfolios. During 2021, the AeRO Market saw a big increase in listing numbers, with more than 10 companies being listed.

Regulation

Which bodies are responsible for rulemaking and enforcing the rules on IPOs?

The Financial Supervisory Authority (FSA) is the key regulator responsible for the Romanian equity capital markets. In certain cases, the National Bank of Romania can also step in, especially in case where credit institutions are also acting as providers of financial services.

Must issuers seek authorisation for a listing? What information must issuers provide to the listing authority and how is it assessed?

The main requirements for a primary listing on BVB’s main market can be grouped as follows: offering or issuer related requirements; prospectus or transparency requirements; FSA approval.

In brief, the issuer must be organised as a joint stock company and its shares must be freely transferable, fully paid up, issued in dematerialised form and registered with the FSA.

Unless otherwise exempted, the issuer must publish a prospectus complying with the national rules and regulations and with the applicable EU legislation. The prospectus must include relevant information regarding the issuer, its standing, business, finances and shareholding structure, as well as shares offered for trading, to allow potential investors to reach informed decisions on whether to invest in the company’s shares.

The prospectus must be approved by the FSA. As an exception, in case of issuers already listed in other EU countries, the approval of the prospectus by the national regulator in their home countries allows for passporting with the Romanian FSA (in which case, a simple notification to the FSA and the European Securities and Markets Authority (ESMA) would be sufficient for a primary listing).

What information must be made available to prospective investors and how must it be presented?

In the context of equity capital markets in Romania, a prospectus is required in principle when securities in the form of shares are admitted to trading on the regulated market (BVB), or when securities in the form of shares are offered to the public in Romania.

The party intending to carry out a public offering must submit a prospectus to the FSA for approval. In principle, the FSA must issue an answer within 10 to 20 business days from the registration of the request for approval. The FSA’s absence of a formal rejection does not represent tacit approval of the prospectus.

Only after the approval by the FSA can the prospectus be made available to the public, at the latest by the date of the initiation of the public offer. A public offer performed without the approval of the prospectus or without the observance of the conditions established by the FSA’s approval decision in connection with the prospectus is null and void.

Exceptions to the mandatory drafting and publishing of a prospectus are provided by the Prospectus Regulation.

The prospectus is deemed to have been made available to the public when published in electronic form on any of the following websites:

• the website of the issuer, the offeror or the person asking for admission to trading on a regulated market;
• the website of the financial intermediaries placing or selling the securities, including paying agents; and
• the website of the regulated market where admission to trading is sought, or where no admission to trading on a regulated market is sought, the website of the operator of the medium term note programme.

What restrictions on publicity and marketing apply during the IPO process?

The most common activities used in practice for the marketing an equity offering are analysts' presentations, ‘early look meetings’ and roadshows. These marketing activities are in line with the general practices implemented by intermediaries in most jurisdictions.

Analysis presentations regard briefings made by the issuer’s management to specialist investment analysts interested in the equity offering, to allow them to prepare research reports.

The early look meetings are organised by intermediaries with a limited number of institutional investors. These are aimed at testing the potential interest of selected investors, while at the same time collecting preliminary feedback and identifying potential issues of interest for the investors, to be subsequently addressed during roadshows.

Roadshows are made by the issuer’s management and advisors primarily to institutional investors, to present the issuer, the offering and the principal reasons for investing in the offering.

In addition to the above, once the prospectus is published, advertising activities can also be used by the issuer, primarily to raise the interest of retail investors. Issuing communications that include advertising content before the FSA’s approval of the prospectus is forbidden.

In all cases, the information presented during marketing activities must comply with the applicable laws (including the rules on insider trading, market abuse and so on), and should be in accordance with the information in the prospectus so that there is no informational disclosure difference between investors.

In addition, advertisements must:

• state that a prospectus has been or will be published; and
• indicate where investors can obtain it.

Where material information is disclosed by an issuer or an offeror and addressed to one or more selected investors in oral or written form, such information must be disclosed to all other investors to whom the offer is addressed and/or be included in the prospectus or in a supplement to the prospectus.

What sanctions can public enforcers impose for breach of IPO rules? On whom?

As a rule, in case a person breaches the IPO rules Romanian legislation does provide legal remedies that can vary depending on the scale and the duration of the infringement, the degree of responsibility of the responsible natural person or legal entity, the financial capacity of the responsible natural person or legal entity, the amount of the benefit obtained or of the losses avoided by the natural person or legal entity responsible, losses suffered by third parties as a result of the infringement, the degree of cooperation of the natural person or legal entity responsible with the FSA, previous infringements committed by the natural person or legal entity responsible.

Breaches are generally administrative offences, unless the conduct under review amounts to a criminal offence. The FSA may notify criminal authorities where it deems such criminal offences exist.

Conduct such as:

• providing unreal information about the financial statements or the economic situation of the issuer, with intention;
• insider dealing;
• recommending or inducing another person to participate in an insider dealing;
• unlawful disclosure of inside information; or
• market manipulation, all constitute criminal offences and are punishable by imprisonment of up to five years for the natural person responsible or by a criminal fine for the legal person.

The FSA can sanction any of the following, depending on their role and responsibilities:

• entities authorised, regulated and supervised directly by the FSA;

• issuers of securities or the members of the board of directors or of the supervisory board, the directors or members of the management board, respectively, the general manager, the deputy general manager;
• employees of the authorised, regulated and supervised entity or of the issuers of securities, natural; or legal persons who exercise de jure or de facto management positions or exercise on a professional basis activities regulated by the law; and
• bidders and/or persons with whom they act in concert, the person requesting the admission to trading of an issuer, the persons in charge of drawing up the prospectus, the holders of financial instruments and/or persons with whom they act in concert, central and local public administration bodies or international bodies.

The FSA can also (1) require the defaulting party to issue a public statement that indicates the natural or legal person responsible and the nature of the breaching or (2) issue an order requiring the defaulting party to cease the conduct constituting an infringement and not to repeat it, and (3) apply fines that vary in accordance with the gravity of the infringement and may take into account the annual turnover of the defaulting party.

Investors can also file claims for damages in regard to payments done in good faith in accordance to an IPO carried out without an approved prospectus.

Timetable and costs

Describe the timetable of a typical IPO and stock exchange listing in your jurisdiction.

The key steps of a primary listing are:

• The issuer’s general meeting of shareholders decides in favour of the admission to trading on the regulated market administered by the Bucharest Stock Exchange (BVB) and the offering of shares.
• The issuer engages an investment firm or credit institution authorised by the Financial Supervisory Authority (FSA) (also known locally as an authorised intermediary). The intermediary is a participant to BVB’s trading system and will handle the procedures necessary to carry out the actual offering and the admission to trading on the BVB’s markets.
• A due diligence exercise is conducted and a prospectus is drafted by the issuer. The prospectus must be authorised by the FSA. The prospectus must include information on the issuer's business activities, share capital, main operations, financial performance, legal proceedings, financings, perspectives, risk factors and similar relevant information for potential investors.
• In a successful offering, the shares are registered with the FSA.
• The issuer enters into an agreement with the Central Depository appointing it as a shareholder registrar.

The Central Depository is an institution that ensures the clearing and settlement of trades involving stock listed on the BVB, and keeps records of the shareholders of the listed companies.

• The intermediary submits to BVB several documents (including the request for the admission to trading and the prospectus along with its approval by the FSA).
• The final decision for admission to trading is taken by BVB’s board of directors. In the case of a positive decision, the issuer’s shares are publicly traded on BVB.

What are the usual costs and fees for conducting an IPO?

When a company considers issuing an IPO, there are some material factors that need to be taken in consideration. On one hand there are the standard fees for the administrative part of the offer (payable to the market institutions, and regulator) and second, fees payable to advisers. 

The administrative fees in the first category are set forth in market regulations and are due to the BVB (the market), the Central Depository (the registrar) and the FSA (the regulator).

For BVB (the regulated market), according to BVB estimates, raising 50 million leu through an IPO will generate administrative costs in range of 129.719 leu in taxes.

For the AeRO Market (an ATS venue), according to BVB estimates, raising 1 million leu through an IPO will generate administrative costs in range of 4.409 leu.

The fees for legal and financial advice, that is usually due to intermediaries, lawyers, auditors and marketing companies may vary depending on the size and complexity of the offer.

Corporate governance

What corporate governance requirements are typical or required of issuers conducting an IPO and obtaining a stock exchange listing in your jurisdiction?

As of January 2016, the Bucharest Stock Exchange (BVB) introduced a new Corporate Governance Code (CGC), that is mandatory for all listed companies and sets the guidelines for them in the field of corporate governance.

Essentially, any listed company must report on its compliance with the CGC and explain each matter where it has decided to depart from the CGC’s recommendations. All these will also be a part of the annual reports of the company.

The main guidelines of the CGC are the following:

• the listed companies have the obligation to respect the shareholder's rights and ensure them a fair treatment;
• the listed companies will make every effort to achieve effective and active communication with the shareholders;
• the listed companies will be administrated by a board of directors, that in turn will meet on regular intervals and will adopt decisions that allow it to fulfil its responsibilities in an effective and active manner;
• the board of directors of a listed company will be held responsible for the management of the company; it will act in the interest of the company and will protect the general interests of the shareholders by way of assuring a sustainable growth of the company; it will function as a collective body, on the grounds of correct and complete information;
• the structure of the board of directors of a listed company will ensure a balance between executive and non-executive members (and especially independent non-executive members), in a way that no person or small group of persons may dominate the decisional process of the board;
• a properly number of members in the board of directors will be independent, in the sense that they do not in the present or din not have in the recent past, directly or indirectly, no business relation with the issuer or persons engaged with it, of such importance as to influence the objectivity of their opinions;
• the board of directors has a number of members that guarantees its effective capacity of oversee, analyse and evaluate the activity of executive directors, as well as the fair treatment of the shareholders;
• the appointment of the board of directors’ members will be an official, rigorous and transparent procedure; the procedure will establish objective criteria and will ensure periodical adequate information on the personal and professional qualification of the candidates;
• the board of directors will assess, if possible, the ordination of an evaluation committee, made up of its members, mainly chosen from the independent directors;
• the listed companies will ensure the services of competent directors and executive directors, by way of using an appropriate remuneration policy, compatible with the long-term strategy and interests of these companies;
• the corporate governance structures, established in the listed companies, must ensure a periodic and adequate reporting on all the important events related to the company, including its financial situation, performance, ownership and management;
• the board of directors will adopt strict rules, meant to protect the company’s interests, in the fields of financial reporting, internal control and risk management;
• the board of directors will adopt appropriate operational solutions to facilitate the identification and adequate solution of situations in which an administrator has a personal material interest or on behalf of third parties;
• the board of directors will establish, after consultation with the internal control structures, approval and implementation procedures for the transactions concluded by the issuer, or its subsidiaries, with the parties involved;
• the members of the board of directors and executive directors will keep the confidentiality of the documents and information received during their mandate and will comply with the procedure adopted by the issuer regarding the internal circuit and the disclosure to third parties of the respective documents and information;
• corporate governance structures must recognise the legal rights of stakeholders and encourage cooperation between the company and them in creating the prosperity, jobs and sustainability of financially sound enterprises;
• corporate governance structures must recognise the legal rights of stakeholders; the listed companies will adopt clear and transparent structures of corporate governance that they will adequately disclose to the general public; and
• where a dual or unitary management and control system is adopted, the above provisions shall be applied accordingly, adapting the uniform provisions to the adopted system, in full accordance with the objectives of good corporate governance, transparency of information and investor and market protection, pursued by the Code.

Also, BVB recommends implementing the corporate governance guidelines as this aspect of a company’s life is part of the ESG (Environmental Social Governance) standards, which are a key factor for an investor when analysing the decision of investing in a listed company.

Are there special allowances for certain types of new issuers?

No. Issuers applying for admission on the BVB or AeRO are all expected to comply with the same requirements. In certain cases, the FSA may allow for a smaller free float than 25 per cent (which is the minimum threshold for admission to trading on a regulated market).

What types of anti-takeover devices are typically implemented by IPO issuers in your jurisdiction? Are there generally applicable rules relevant to takeovers that are relevant?

Anti-takeover devices are not market standard locally because usually the offerings are made for limited enough stake of shares not to allow a real takeover to happen. In this case, the FSA has the right to allow offers proceed for smaller stakes to the extent it finds market liquidity will not be affected.

Notwithstanding the above, any party interested in acquiring control of an issuer may launch a public offer to buy shares, to all the shareholders. Additionally, any party acquiring more than 33 per cent of the shares of an issuer must lunch an offer to buy or sell shares to drop under the trigger thresholds.

Takeover bids are subject to rules set forth by Directive No. 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids (Takeover Directive) as implemented locally.

Foreign issuers

What are the main considerations for foreign issuers looking to list in your jurisdiction? Are there special requirements for foreign issuer IPOs?

There is no distinction between Romanian and foreign issuers in terms of steps and requirements for a listing on the Bucharest Stock Exchange (BVB). As a result, in principle, the main requirements for foreign and Romanian companies are the same. If the company is already listed on an EU market, the issue of a separate prospectus is not necessary and the prospectus can be passported. However, a Romanian language version of a summary of the prospectus will be required.

Where a foreign issuer is conducting an IPO outside your jurisdiction but not conducting a public offering within your jurisdiction, are there exemptions available to permit sales to investors within your jurisdiction?

The main ways of structuring a subsequent equity offering in Romania are through a secondary public offering, when the offer concerns already issued shares, an issue of new rights or an offer through a private placement.

A rights issue gives existing shareholders of a listed company a preferential right to acquire shares in a share offering (usually at a discounted price) to avoid dilution. Alternatively, such existing shareholders can sell their right to acquire shares in the offering.

A private placement is an offer of shares to, for example:

• less than 150 investors; and
• qualified investors such as professional clients, including: credit institutions; investment firms; financial institutions; insurance companies; pension funds; other similar investors.

Under relevant legislation, a private placement does not require the preparation and publication of a prospectus.

Tax

Are there any unique tax issues that are relevant to IPOs in your jurisdiction?

No specific tax issues arise when issuing new shares in Romania. As regards the offering and sale of existing shares, certain tax implications may arise that will require specialist tax advice. These relate primarily to the capital gains tax on the sale of shares, which applies to both individuals and entities.

Investor claims

In which fora can IPO investors seek redress? Is non-judicial resolution of complaints a possibility?

As a rule, investors would seek redress according to the rules determined and established in the IPO documents. For a Romanian IPO, generally Romanian courts would be the competent forum.

Parties may reach non-judicial resolution where the claim concerns a contractual matter and not a criminal or administrative offence.

Are class actions possible in IPO-related claims?

Class actions are not available under Romanian law for IPO-related claims. However, interested investors may, for example, find legal solutions to join their individual claims to obtain a more solid court resolution.

What are the causes of action? Whom can investors sue? And what remedies may investors seek?

In such cases, liability is generally with the issuer and the other parties accepting liability of the prospectus.

Remedies depend on what is being asked by the investor. Courts may provide both damages and specific performance (eg, where criteria for allocation of shares were not complied with at the time of the offering).

Update and trends

Are there any other current developments or emerging trends that should be noted?

Local markets have been reacting to the war in Ukraine and a certain instability is expected, with some offerings even being temporised.

At the end of May 2022, Law No. 142/2022 came into force, simplifying the tax regime of investments on the capital markets. The law is addressed mainly at retail investors, and it is expected to encourage the long-term growth of the local capital market.

What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?

Law stated date

Please state the date on which the law stated here is accurate.