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New length restrictions will require issuers to focus on key information for investors.

By James Inness and Connor Cahalane

Under the Prospectus Regulation, which comes into force on 21 July 2019 (See EU Prospectus Regulation: New Format and Content Requirements), issuers preparing equity prospectuses will need to comply with new rules on the summary section. While the changes allow some flexibility on the information issuers must include in the summary, there are new requirements and restrictions that issuers need to be aware of. 

The full regulation will come into force in July, imposing new requirements for prospectuses

By James Inness and Connor Cahalane

The new EU Prospectus Regulation will take full effect on 21 July 2019. Issuers and other parties to capital markets transactions can expect changes in the following areas:

  • Prospectus summary: New content requirements and length restrictions will make the summary section more concise while allowing issuers the flexibility to include key information for investors.
  • Risk factors: With some material changes to the rules relating to risk factors and new ESMA guidelines, risk factors are likely to be a particular focus area for regulators.
  • Simplified prospectus: A new reduced disclosure regime will apply to secondary issues, such as rights issues.
  • Growth prospectus: Certain issuers, mainly SMEs, will be able to make public offers using an EU Growth Prospectus with lighter disclosure requirements and a standardised format.

Although the new rules will not take effect until July, competent authorities are already applying the new requirements to any prospectuses under review that are expected to be approved after 21 July 2019. In the coming weeks, Latham & Watkins will publish additional posts that take a more detailed look at the changes to the summary section, risk factors, and other areas that will impact transactions.

By James Inness

A new prospectus regulation (Regulation (EU) 2017/1129) (the Regulation) will come into direct effect on 20 July 2017, with a small number of provisions applying immediately and the remainder applying from 21 July 2019. The changes under the Regulation will likely be relevant to issuers both before and after Brexit.

Which Provisions Will Apply Immediately?

The previous exemption allowing issuers to issue up to 10% of the number of shares of the same class already admitted without the need to publish a prospectus will be increased to 20%. The exemption also now applies to all types of securities, not just to shares. Clearly, issuers will welcome this increased flexibility and the market will undoubtedly see larger undocumented deals. Given investor resistance to larger cash-box offerings (absent shareholder approval) we do not expect the changes to the prospectus regime to affect market practice in relation to cash-boxes.

The Regulation will tighten the current exemption allowing issuers to admit shares resulting from convertible securities without a prospectus. The current exemption will now only be available where the issue of shares represents less than 20% of the total shares of a corresponding class of shares that are already admitted. This change is subject to exceptions including shares admitted in connection with convertible securities issued before 20 July 2017.