Equity raises: prospectus exemptions and share issuance approvals

NL Law
EU Law

When a listed company is planning a capital increase through an equity issuance, there are a few things to keep in mind. You'll need to think about what corporate approvals you need to issue new shares and what sort of disclosure you need to make. The EU Listing Act is about to expand prospectus exemptions in this area. In this article we'll look at the changes and how share issuance approvals affect their use in practice.

EU Listing Act: broader prospectus exemptions

When a listed company issues new shares, it should determine whether the equity raise requires a prospectus. Not having to publish a prospectus can be a real time-saver and cost-cutter. Fortunately, the EU Prospectus Regulation (PR) provides a list of prospectus exemptions, and they are going to be expanded under the Listing Act that was approved by the European Parliament on 24 April 2024. 

The exemption for new admissions of securities of the type already listed on the same market will be expanded. Instead of up to 20% (looking back over a 12-month period) of the number of securities already listed, it will now be to up to 30% (Art. 1(5)(a) PR). This "sub-30 exemption" will also be available for public offers, unless the issuer is going through to an insolvency process or restructuring (new Art. 1(4)(da) PR).

There will also be a new exemption for follow-on offerings and admissions of securities similar to the ones that have already been listed any regulated market for at least 18 months (new Art. 1(4)(db) and 1(5)(ba) PR). You don't need a prospectus for these offerings or admissions, no matter how many securities are offered or admitted.

If you want to know more about these changes to the prospectus exemptions and what they mean, see our recent article on the Listing Act: expanded prospectus exemptions.

Share issuance authorisation at Dutch listed companies 

It’s pretty obvious that not having to publish a prospectus makes it easier to prepare a capital increase. How quickly the transaction can be executed also depends on other things. If you have to get separate shareholder approval for the equity raise, it might take longer. For example, Dutch companies listed on Euronext Amsterdam or another EEA regulated market have to give six weeks' notice to call an EGM.

To avoid having to call an EGM for each share issuance, Dutch listed public limited companies (NVs) tend to give their executive or management board the authority to issue shares, subject to approval by the supervisory board. This delegation is usually granted each year at the AGM for a period of 12 months and is limited to a specified percentage of the issued capital. 

The standard for Dutch companies listed on Euronext Amsterdam is to authorise the executive board for issuances up to 10% of the issued capital without pre-emptive rights – although there are exceptions. This market practice is in line with the guidance from proxy advisors such as ISS (up to 10% non-pre-emptive and up to 50% pre-emptive) and GlassLewis (up to 10% non-pre-emptive and up to 20% pre-emptive), and by the Dutch representative of institutional investors Eumedion (same percentages as Glass Lewis).

Interplay between prospectus exemptions and share issuance authorisation

So, it seems that he scope of share issuance authorisations for Dutch listed companies doesn't match the prospectus exemptions threshold percentages. Whether this causes tension, depends on the structure of the transaction. 

For rights issues (i.e. a pre-emptive grant of rights to existing shareholders that can be exercised for shares on payment), it may not be a big deal. Rights issues don't qualify for the prospectus exemptions we've discussed, because they involve the admission of securities of a new type (i.e. the rights). So you'll need a prospectus, even if it's just an EU follow-on prospectus. Preparing this and getting it approved will take longer than the 6-week notice period for an EGM. 

If you're doing an accelerated book-build transaction or ABB (i.e. a private placement with selected qualified investors that is executed within a short timeframe) you can benefit from the sub-30 prospectus exemption or the follow-on exemption. However, if a Dutch issuer intends to speedily execute an ABB, the maximum offer size will, in practice, still be limited to 10% of issued capital, because its corporate authorisations usually don't allow the issuance of a larger number of shares without shareholder approval. Because of timing restrictions, calling an EGM to get a larger authorisation is generally considered not feasible in the context of an ABB.

This shows that issuers won't always be able to take advantage of the more generous prospectus exemptions. This could change if the guidance from proxy advisers on share issuances changes. So, is that something we should be expecting? We don't think so. In the consultation process for the Listing Act, Eumedion took the view that the prospectus exemptions we discussed earlier should be scrapped altogether. From that position, it seems like there's still a long way to go to before we see expanded share issuance authorisations.