IFLR EU Prospectus and Primary Market Issuance Conference: key takeaways

Author: IFLR Correspondent | Published: 26 Sep 2019
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The latest from Esma and the European Commission

The main bulk of the new Prospectus Regulation is quite recent, with 90% of the new regulation applicable from July 21 2019: "It’s been a long journey";

Thanks to consultation papers from Esma, there has been a great collection of feedback since 2017: "So far, market participants seem satisfied";

It’s still too early to assess the impact of the risk factor requirements;

One of the main points of the regime was the extension to cover securities. Regulators want to avoid the risk of a spill over effect for retail investors – the point is for them to benefit, and have a full prospectus available. Panellists not aware of what the market appetite will be like yet;

Esma is confident that the way things are currently shaped will guarantee investor protection. Although other Q&As are currently in the pipeline, as there are other topics the regulator would like to address;

There has been some discussion around including environmental, social and corporate governance (ESG) disclosures on the prospectus.

National regulatory authority views, messages, clarifications and interpretations on the key technical areas of the Prospectus Regulation, including risk factor ordering and materiality

Regulators are getting to grips with the Prospectus Regulation, and feedback from users is slowly starting to come through. The market is grappling with issues, and players are working well together to come up with solutions;

So far, there have been around 25 prospectuses received – mostly from shares issues. Much of the issuance has been done automatically;

As of July, the Autorité des marchés financiers (AMF) had approved eight prospectuses – mostly equities. One of the main area of focus, for supervisory teams, has been around risk factors. Most of the French issuers will continue with universal documents (around 300 of them);

There are questions in particular as to the comprehensibility of the regulation – there’s a need to make the prospectus more accessible to users, more comprehensible. Long documents – which is not to say that length makes it less understandable – but often those long structures are less comprehensible;

The AMF anticipates a discussion around risk factors soon. Guidelines should be very useful in terms of how to categorise risk factors;

They say they are very aware of their role in challenging risk factor disclosure. Responsibility and liability lines are important;

Regulators say they have been getting a lot of questions around Brexit over the past 12 months: with regards to transfer of approval and testing; in terms of moving programmes elsewhere, such as Ireland for example. On the subject of Britain and the EU, panellists said that it is important to differentiate the implications of a hard and of a soft Brexit;

There is a question mark around knowing whether the London Stock Exchange will be accepted as an equivalent market – in this context, EU regulators say they won’t be able to accept it.

The Prospectus Regulation in practice, the impact of Brexit, and other major issues and developments affecting the industry today

Challenges under Priips and Mifid II need to be taken into account;

The new Prospectus Regulation hasn’t really changed the commercial motivations one should consider when choosing an issuer, and in that sense their impression on the changes is neutral;

When issuers are preparing a wholesale prospectus for institutional investors there doesn’t seem to be a corresponding benefit for market participants;

In the wholesale space at least, not much more has been achieved than with previous prospectuses. If anything, this has just made things "a bit more complex";

Looking across the equity capital market, it was noted that some of the continental regulators have been challenging. Experiences show that it has definitely had an impact on transactions timetable;

Panellists noted that, in some cases, it’s been business as usual, while others have taken longer to get through. It’s not an equal experience across the board;

This creates an arbitrage risk, and there could be a market perception that there is a regulatory arbitrage between competent authorities. Overall, risk factors have to be ranked – and regulators have to be vigilant with regards to that;

On the transition away from Libor, in relation to the Prospectus Regulation, it was regarded as high on issuers’ radar. Panellists felt that the next 12 months should see awareness around this improve a lot. Wouldn’t say issuers are rushing to do their transition – but it’s certainly something they talk about.  Many issuers are looking to update their fallbacks. Some are adopting a wait-and-see attitude.

The latest on regulated and exchange regulated markets – views from Ireland, the UK and Luxembourg

There is some scepticism in the market about the burden of prospectus rules;

Interest in the wholesale investor market has been mixed;

Responses from financial players in London on the matter of a wholesale investor market have been mixed, with both keen interest and scepticism;

Luxembourg’s stock exchange appears to have had the most interest, though no prospectuses have been approved yet;

Professional-only segments viewed as a good way of "taking the 'r’ out of Priips";

Ireland’s market is not yet seeing a demand for professional-only segments;

The panel feels that stock exchanges should give opportunities to the market to prove that they are sustainable, welcoming the increased interest in sustainable finance in Europe.

Green bonds and the move towards more sustainable financing - what you need to know

The majority of the market is still operating on a voluntary best practice mode, with limited legislative guidance having materialised;

High growth was recognised in the market by the panel, with one participant saying that the market was "near mainstream status";

It’s still predominantly a European theme, though there is increased interest in North America and Asia;

The panel greeted the EU as having taken up the challenge on this matter. However, the panel got a lukewarm response when asking who was aware of the EU action plan;

There was some concern that stringent or over-ambitious regulation could hinder the market;

Panellists felt that this won’t remain niche for long, with one saying that "we will be seeing this on our desk soon";

It was noted that there has been an emergence of sustainable finance lawyers. Panellists also called on in-house lawyers to be more visible, and help companies confront the frontline issues such as climate change.

Other key market and regulatory developments affecting the primary market

The panel acknowledged that work is being done in Europe and beyond to ensure that market participants are ready for the end of Libor in 2021;

Under Sonia, there have been 16 securitisation transactions and most of these have been issued by financial institutions. BMW has also issued a bond. This was greeted by the panel as a good step that it is being adopted not just by financial institutions, but also by the market;

There has been speculation that there could be a European bond issued soon;

Panellists warned that market participants should not expect support from legislation, as authorities have made clear that this is a market issue;

There is a risk of shareholders or bondholders not voting in favour on the matter of transitioning away from Libor;

The panel agreed that the universal registration document is not yet being widely used in the European market, but would be good to have at EU level, especially with the prospect of Libor-related litigation.