Equity Finance SGS 2: Flotations 2 (2): The Prospectus / Timetable for a flotation

11) Timetable for an IPO (retail offer: steps required for an institutional-only offer are included where they differ) 1: Preparation of the prospectus

1-3 months ahead of launch Price range prospectus prepared, verified and reviewed.

Which prospectus is used depends on the type of offer being made...

1. Institutional only offer = path-finder or final price 2. Retail element offer = price-range or final price

3) FSMA test 2 s.85(2)

1. Is the issuer making an application for admission of its securities on a regulated market? e.g. an IPO 2. If yes - do any exemptions apply?

When is the FCA permitted to authorize not disclosing certain information in the Prospectus?

The FCA may ONLY authorise the omission under S87B(1)(a)-(c) FSMA [PR 2.5.2R] if: 1. the disclosure would be "seriously detrimental" to the issuer and "omission would not be likely to mislead the public" as to any facts and circumstances 2. the disclosure would be "contrary to public interest" 3. the info is of "minor importance" and is unlikely to influence an informed assessment of the offer

8a) Approval of the Prospectus What?

The FCA must approve the Prospectus before it can be published - PR 3.1.10R Other docs & the fee must be submitted to the FCA - PR 3.1.3R

1) Is a prospectus always required?

• A prospectus is not always required! Exam tip: must go through all parts of the test - even if they don't apply and explain why

Exemptions

1) Exempt securities - S85(6)(a) & (b) FSMA • Part 1, Schedule 11A FSMA • or listed in PR 1.2.3R

2) FSMA test 1 s.85(1)

1. Is there an offer of transferable securities to the public? 2. If yes - do any exemptions apply?

Why use a pathfinder?

1: Flexible- company does not have to set the final price until late in the day, when they have worked out how much interest there is and can therefore set the highest possible price for the shares. Conversely, a price range prospectus provides less flexibility: company must determine the price range before they have a full picture of the interest in the shares- meaning that the company may not receive the highest price for its shares 2: reduces the risk of the company having to publish a supplementary prospectus

When must the other documents be submitted to the FCA for approval by?

1: New applicants (an IPO) must submit these 20 clear working days before the intended approval date of the Prospectus - PR 3.1.3R(2)(b) Companies already admitted to trading can submit them 10 clear working days before - PR 3.1.3R(2)(a)

7: Hearing for admission of shares to listing before FCA and hearing of admission of shares to trading before LSE

2 business days after '48 hr' docs submitted; Shareholder statements must be submitted before 9am on the day of the hearing (LR 3.3.3)

3: Marketing of the IPO

2-6 weeks before launch Company announces intention to float. Roadshows take place to institutional investors to generate interest in the IPO.

Pathfinders

A pathfinder is not actually a prospectus • It is a marketing document sent to institutional investors • Institutional offers are exempt from requiring a prospectus so at the initial offer stage no prospectus is needed

10) Financial Promotions

A price range prospects or a final price prospectus are not financial promotions as they fall within the exemptions in the FPO • But a pathfinder will be a financial promotion under S21 FSMA, unless it falls within one of the exemptions in the FPO —> so this is why it is only sent to institutional investors

Applying to exclude information from the prospectus

An application can be made to omit required information from the prospectus • Via a "reasoned request" in the form of a Variation Request Letter

Offer of transferable securities to the public

Defined by S102B FSMA • Any communication in any form, by any means • Which presents sufficient info on the transferable securities (can they be traded?) to be offered and the terms on which they are offered to enable an investor to decide whether or not to buy the securities in question • An offer which is made to any one person in the UK is deemed to be made to the public (this includes through a financial intermediary - the intermediaries offer)

Is the issuer making an application for admission to trading on a regulated market in the UK?

Defined by S85(2) FSMA • An IPO is a clear example • The issuer is the company engaged in the IPO • The MM of the LSE is a regulated market (but NOT AIM) • An application will be made when the company makes an application to the LSE for admission to trade

Exemptions (1) - if any apply = it is not an offer to the public (no prospectus needed)

Exempt offers - S86(1) FSMA (more important exemption) • Offer made to qualified investors only (institutional investors will qualify) • or offers made to <150, other than qualified investors -------------------------------- - accordingly, institutional offers commonly made to less than 150 offerees

Exemptions (2) - if any apply = it is not an offer to the public (no prospectus needed)

Exempt securities - S85(a) & (b) FSMA • This refers to Parts 1 & 2 of Sch 11A FSMA & PR 1.2.2R • These set out a list of securities which can be offered to the public without a prospectus - e.g. bonus issue of shares to existing SHs

4: Launch

FCA approves the price range prospectus (PR 3.1.7). Must be made public on the company's website. Can also be be published on the LSE's website - PR 3.2.4R & PR 3.2.4AR the IPO is formally announced; - bookbuilding formally begins; - underwriting agreement is signed - price range prospectus is published - placing letters are sent out to potential placees (PR 3.1.10 & 3.2)

What must the Summary contain? (3)

Format Must be set out as a table / list • Must not exceed 7% of the entire prospectus, or 15 pages (whichever is longer) • Must be stand-alone doc - so capable of being understood in isolation • Must not contain cross-references • Must be in same language as prospectus - PR 2.1.6R • Must contain the specific warning in PR 2.1.7R

(IO only)

Institutional placees will subscribe for shares. Key: the offer does not have to be open for as long as a retail offer. 48 hour docs are submitted to the FCA for approval (LR 3.3.2) The fixed price prospectus will be approved by the FCA

When will the pathfinder be redrafted?

It is not until an application is actually made to the LSE for the shares to be admitted that a Prospectus is required under S85(2) FSMA • When the flotation occurs = will need a prospectus - so the pathfinder will be redrafted into a prospectus with a final price (the initial Pathfinder doc will be very detailed and will contain most of the info needed for a "true" prospectus- the two are v similar)

12) What are the 48 hour documents

LR 3.3.2R - approved prospectus - signed application form for listing; - written confirmation of the number of shares to be alloted

5: Last date to subscribe

Members of the public / placees "subscribe for shares" by returning completed Prospectus application form. The offer must be open for AT least 6 days or more after launch. -------------------------------- Pricing and allocation of shares is finalised and a pricing statement is published (PR 2.3.2(2))

8b) Publication of the Prospectus

Once approved, the prospectus will be published in accordance with - PR 3.2 1) Retail offering prospectus must be published at least 6 working days before the closing date of the IPO— PR 3.2.3 2) Institutional offers, doesn't have to be published so far in advance, can be published 'a reasonable time in advance' or at the start of admission to trading - PR 3.2.2R

Key specific disclosure obligations PRs

PR 2.1.4; PR 2.3.1; PR 2.3.1A • set out the minimum information to be included • with reference to the PD regulation Article 3 • the prospectus must be drawn up using 1 or a combination of the schedules / building blocks in the PD regulation Article 21 • Requires issuers to use the combinations of schedules and building blocks in the table contained in Annex XVIII of the PD Regulation (PR Appendix 3.1)

4) Format and content of the Prospectus Can a prospectus be made up of separate documents rather than one document?

PR 2.2.1 - a prospectus can be a single doc or separate docs • Generally applicants will have the prospectus as one single document • If separate docs are used = the info must be divided up into; (1) a registration doc; (2) a securities note; (3) a summary - PR 2.2.2R

(institutional offer)

Pathfinder (was drafted 1-3 months before launch) is converted into a "Fixed Price Prospectus" Submitted to the FCA "at least 20 clear working days" before the intended approval date, i.e. submitted at least 20 clear working days before the day on which the 48 hour documents are lodged

7) Exception to disclosure requirements

Some info may be omitted but only if: 1) the info would be 'inappropriate' to the issuers activity or to the legal form of the issuer or the securities - which is only likely to be the case in 'exceptional' circumstances = PR 2.5.1R 2) OR the information is not "pertinent" to the issuer, the offer or the securities and there is no equivalent information - PR 2.3.1

What must the Summary contain? (2)

Specific info Must comply with contents requirements in PR 2.1.4

What must the Summary contain? (1)

Summary required by s.87A(5) FSMA General info- s.87A(6) Must use concise, non-technical language to convey key information about the securities to investors • Key information (S87A(9) & (10) FSMA) = information that is essential to enable investors to understand the securities and decide whether to consider the offer further

Specific disclosure duty

The PRs also have specific disclosure obligations • These differ depending on the nature of the issuer and types of shares being issued

(IO)

The Pathfinder is sent out to potential institutional placees (PR 3.1.10 & 3.2) and Bookbuilding commences

Admission Day

The day after the admission hearings FCA and LSE announce that shares admitted to trading Shares are issued: - share certs issued, or; - CREST accounts credited Admission and unconditional trading commences

What format should the Variation Request Letter take?

The letter must be: 1. In writing - PR 2.5.3G(1) 2. Identify the specific information for which the omission request is sought and the reasons for the omission - PR 2.5.3G(2) 3. explain why, in the issuer's opinion, one or or more of the grounds in S87B(1) FSMA applies - PR 2.5.3F(3)

5) Price information in the Prospectus

The prospectus must contain the final offer price for the shares. If it does not, it must instead disclose the criteria by which the price will be determined, or its maximum price- PR 2.3.2R(1) The company must inform the FCA and prospective investors "in writing" as soon as the price is finalised (s.87A(7) FSMA & PR 2.3.2R(2)).

9) What are the main types of prospectus

There are 3 main types of prospectus': 1. Price range prospectus 2. Pathfinder prospectus 3. Final price prospectus

Price-range prospectus

Used for retail offers because the company is required by S85(1) FSMA to issue a prospectus when offering its shares to the public • Using a price range allows some flexibility when deciding final price - though not as much as a path finder

When will a prospectus be required?

When will a prospectus be required? 1. If either of the tests are satisfied - S85(1) & S85(2) FSMA 2. And no exemption applies

Why use separate prospectus documents?

Why? the issuer may choose to use a separate registration doc. to take advantage of PR 5.1.4R which allows this part to remain valid for up to 12 months • Can therefore be re-used with a new securities note and summary note during the period (only do separate if the issuer has immediate plans for further issuing within next 12 months) Nb. in practice this saves little effort, so it is generally preferable to use one document for an IPO

6: Submission of documents before FCA admission hearings

• Called '48 hr docs' because they must be submitted by midday 2 business days prior to listing • Docs include the approved prospectus and the application for Admission form - LR 3.3.2R

2: Docs submitted to the FCA before approval of the prospectus

• Draft prospectus must be submitted together with a cross-reference list identifying the pages where each disclosure item can be found in the prospectus - PR 3.1-1R New applicant: at least 20 clear working days before the intended approval date of the prospectus- PR 3.1.3(2)(b) • or 10 clear working days if not a new applicant - PR 3.1.3R(2)(a) • In practice - submit earlier to allow time to respond to any comments made by the FCA

6) Disclosure: General duty of disclosure in the prospectus

• S87(A) FSMA - requires a prospectus to contain all information necessary to enable investors to make an informed assessment of: • a) the assets, liabilities, financial position, profits, losses and prospects of the issuer and any guarantor • b) the rights attached to the securities PR 3.1.2A - an applicant must take reasonable care to ensure that any prospectus contains all information as required under S87A(2) FSMA