On 20 April 2021, the Luxembourg CSSF published Circular 21/771 (the “Circular”) on the application of the guidelines of the European Securities and Markets Authority (ESMA) on disclosure requirements under Regulation (EU) 2017/1129 of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC (the “Guidelines” and the “Prospectus Regulation”, respectively). By way of this Circular, the CSSF informs all persons or entities subject to the Prospectus Regulation that the Guidelines, applicable since 5 May 2021, have been integrated into its administrative practices and regulatory approach.
Scope and purpose of the Guidelines
The Guidelines apply to competent authorities as defined in the Prospectus Regulation and to market participants, including the persons responsible for a prospectus under Article 11(1) of the Prospectus Regulation.
The purpose of the Guidelines is to help market participants to comply with the disclosure requirements set out in Commission Delegated Regulation (EU) 2019/980 (the “Supplementing CDR”), as well as to enhance consistency and efficiency across EU Member States in the way that the annexes to the Supplementing CDR are understood. The Guidelines furthermore promote effective supervisory convergence and practices assessing the comprehensibility and consistency of information prospectuses across the Union. A prospectus containing the necessary information for investors to make an informed assessment of the assets shall be made following the Guidelines’ content.
Selection of key changes introduced by the Guidelines
The Guidelines update and replace the recommendations of the Committee of European Securities Regulators (ESMA’s predecessor) and introduce the following substantive changes:
- Integration of ESG information
The increasing importance placed on ESG in the EU and international capital markets has led ESMA to include express reference on disclosure relating to ESG matters in the Guidelines. The Guidelines now provide for disclosure on how an issuer’s earnings, cash flows, material business assets and liabilities could potentially be impacted by its non-financial objectives and strategy, facilitating an investor’s assessment of the future sustainability of earnings and cash flows of an issuer.
- Working capital
The Guidelines put focus on the robustness of preparation and the clarity of working capital statements, which shall not be open to more than one interpretation. Distinction is made between ‘clean’ and ‘qualified’ working capital statements, i.e. whether an issuer can or cannot state without qualifying wording that it has sufficient working capital to meet its present requirements.
- Profit forecasts, estimates and historical financial information
The persons responsible for the prospectus shall ensure that profit forecasts and estimates are (i) understandable, (ii) reliable, (iii) comparable and (iv) relevant. Moreover, issuers shall specify whether profit forecasts and/or estimates have been audited or subject to review.
Any profit forecasts or estimates disclosed by an issuer should be comparable with its historical financial information. An issuer that intends to adopt a new accounting framework shall integrate into its prospectus the related historical financial information for their next published financial statements. Where the prospectus is required to include historical financial information for three financial years, and not all of those years of financial information are restated, the persons responsible for the prospectus shall make use of the so-called ‘bridge approach’, i.e. they should present and prepare the middle period under both the current and the new accounting framework and should present and prepare the last period only under the new accounting framework.
- Pro forma
The disclosure of pro forma financial information for multiple transactions undertaken by an issuer, which collectively constitute a variation of more than 25% in one or more indicators of the size of the issuer’s business (i.e. its total assets, revenue or profit and loss) is compulsory, unless it is disproportionately burdensome for the persons responsible for the prospectus to produce such pro forma financial information. The determination of whether the 25% threshold is reached should be based on the size of a transaction relative to the historical financial information before such transaction took place.