The preparation phase may take between 2 to 4 months before finalizing the process of admitting the bonds to trading. The preparation phase (as the planning phase) will vary greatly dependent on several factors such as: the Company´s development stage, if it is the first issuance or not, if you have a base Prospectus, if the Company will launch a public or private offer and if you chose a regulated market or an MTF for listing.
What are the necessary preparation steps you need to take?
220.127.116.11.1. Preemptive setup
18.104.22.168.1.1. Kick-off meeting
Once all members of the Bond Offering team have been selected, the kick-off meeting brings them together to agree on:
22.214.171.124.1.2. Adapt corporate governance structure and internal compliance functions
How efficient, compliant and accountable is your Company?
Corporate Governance structure
Companies that intend to have bonds admitted to trading on Regulated Markets may have to adapt their Corporate Governance structure. Below it is presented the obligations that these companies must fulfill in what regards their organizational structure:
*To be independent, the members must not be associated with any specific interest group of the Company or be under any circumstances likely to affect their exemption from analysis or decision. Particularly, to assure their independence, members cannot (i) hold or act on behalf of holders of a holding equal to or greater than 2% of the Company’s share capital; and (ii) have been re-elected for more than two terms, continuously or interspersed.
Review of internal functioning and organisation
Your Company should also anticipate the rules applicable to companies with bonds listed in order to allocate the necessary resources and put in place the internal compliance functions, processes and systems necessary to guarantee the compliance with those rules.
126.96.36.199.1.3. Adapt financial accounts, if necessary
Depending on the market your Company wishes to list its bonds, different rules on accounting standards apply.
For example, a Company with bonds admitted to trading on a Regulated Market, such as Euronext Lisbon, is required to report financial accounts in compliance with the international accounting standards accepted at European level, corresponding to IAS/IFRS or accounting standards considered equivalent to IFRS by the European Commission.
The Company will therefore have to consider the requirements related to adoption of these accounting standards. You might require assistance from certified accountants in order to fully understand the impact of change in the accounting framework (although the recent trend has been a gradual convergence between standards). Nevertheless, although IFRS can be more complex, it presents the advantage of comparability with companies at European level, which may promote the Company notoriety towards international and Institutional Investors. Hence, if you need to convert your accounts you can easily be assisted by a professional and this conversion will enable you to benefit from the advantages stated.
A Company with bonds admitted to trading on Euronext Growth and Euronext Access has the choice of reporting its accounts in accordance with IFRS, or accounting standards considered equivalent to IFRS by the European Commission, or with the accounting standards applicable in Portugal (i.e. SNC).
188.8.131.52.1.4. PLACEMENT agreements and appointment of Placement Financial Intermediaries
At the beginning of the Bond Offering journey the Company’s management meets with potential Bond Offering partners that may be appointed to support the Bond Offering process, as well as the Company on the life after becoming a company with listed bonds.
Moreover, your Company may appoint one or more Placement Financial Intermediaries that will be in charge for the distribution of the offered bonds and will negotiate and enter with such Placement Financial Intermediary(ies) a placement agreement to regulate the terms and conditions of the distribution services.
The negotiation of a placement agreement may require some time and should start early in the bond offering preparation phase. Signing must occur prior to the approval of the Prospectus by the Regulator.
184.108.40.206.1.5. Internal decision-making process
The decision to offering bonds to the public and related decisions during the bond offering journey require the prior approval of corporate resolutions during the Preparation phase, such as:
The general meeting of the Company is responsible for approval of the decision to issue bonds, except if its articles of association empower the board of directors with such competence. In any case, the resolution approving the bonds issue typically delegates power to the board of directors or managers to take decisions during the preparation process.
220.127.116.11.1.6. Engagement with the Regulator, the Stock Exchange and the Central Securities Depository
The applications for the Prospectus approval by the Regulator (in Portugal, the CMVM), for the listing approval by the Stock Market Operator (in Portugal, Euronext Lisbon) as well as for the registration of the Company’s bonds with the Central Securities Depository (in Portugal, Euronext Securities Porto) should be filed with a set of legal and financial documents set out in the applicable laws and regulations.
It is recommended that the Company, and its advisors, engage with these entities in an early stage of the Bond Offering journey for a smooth and timely approval procedure.
18.104.22.168.2. Due Diligence
Contrary to what occurs in equity offerings, in bond offerings the due diligence will normally only take place in case there is either an underwriting of bonds by the arrangers or some sort of offering / roadshow to institutional investors, normally at the request of the underwriters or these investors. Furthermore, since bond offerings do not entail a change of the issuer’s shareholding structure, the scope of this due diligence is usually more restricted than equity offerings’ due diligences, including only financial, commercial, legal, accounting and tax matters that may be deemed key by the underwriters or institutional investors.
This process is intended to provide knowledge of the Company, allowing it to correct any issue before the offering of its bonds and supporting it with strengthening of its business and corporate governance practices as well as ensuring that the required information about the Company will be disclosed in the Prospectus. Throughout the Bond Offering process, additional due diligence sessions may be planned at each key milestone to ensure that the information disclosed is up to date.
Why should a Due Diligence be performed in the context of a Bond Offering?
The purpose of conducting a Due Diligence process in the context of a Bond Offering may be to:
As a best practice all information included in the Prospectus should be tied to a source document that was duly analysed during the Due Diligence and confirmed by the Company’s board, management of the Company and its external advisers (legal, accounting and any others as appropriate).
If you decide to proceed with a Public Offering in which the offer size and/or structure does not meet one of the exemptions presented in section ‘4.0. Road to Debt offering’ and/or you will request admission of the offered bonds to a Regulated Market, you will have to prepare and disclose to the public a Prospectus approved by the Regulator, drafted in accordance with the EU Prospectus Regulation.
What is the Prospectus?
The Prospectus is a legal document, which provides to potential investors and analysts all material key information that may affect the investment decision. The Prospectus includes legal, financial (both historical and prospective financial information) and commercial information with contents adapted to the Company’s profile and bonds.
This document enables investors to clearly assess the Company’s patrimony, financial situation, results, and prospects. The Prospectus must be complete, understandable, and consistent. Once approved by the Regulator, it will be published prior to the bond offering or admission to trading.
The Prospectus may be drafted as a single document or as separate documents, dividing the required information into:
What is an EU Growth Prospectus?
Considering the specificities of the different types of bonds, Companies, offers and admissions, the EU Prospectus Regulation foresees different types of Prospectus, such as the EU Growth Prospectus. This is a simplified Prospectus for certain Companies, with limited page numbers and less information required, making it easier for these companies to access the capital markets. The EU Growth Prospectus may be used regardless of the market segment in which the issuance will take place.
What is EU passporting of Prospectus?
As EU Prospectus rules are similar in all Member States, once a Prospectus has been approved in one EU country, it is valid throughout the EU (through the passport mechanism). This represents an important simplification for Companies since allows Companies to launch offers or admit to trading debt instruments in several EU countries, resorting to the same Prospectus, provided that the Company requests the Regulator approving the Prospectus to send it (passport) to the Regulators of the relevant Member States.
What is CMVM approach?
CMVM recognizes that streamlining the conditions for issuers to access financing through capital markets, together with ensuring high quality standards for information to be provided to investors, generates trust and is a key element for the development of the Portuguese capital markets.
In the context of public offers or admission to trading processes, CMVM assumes as a priority the commitment with specific approval dates and the agility in reaction times to analyse Prospectus and recognizes the importance of calendars’ predictability as essential conditions for a smooth Prospectus approval processes.
The Prospectus for a Public Offering for distribution remains valid for a 12-month period from the date of their approval by the CMVM, and provided the Prospectus is updated accordingly with any supplements that may be required. In particular, a base Prospectus might be a relevant and very interesting tool providing companies with sufficient flexibility to fulfill emerging financing needs throughout a period of 12 months after its approval.
It may occur that in the time between the approval of the Prospectus and the time when trading on a Regulated Market begins a material mistake or a material inaccuracy relating to the information included in a Prospectus, which may affect the valuation of the bonds.
In these cases, the Company must issue a supplement to the Prospectus with the relevant information and request approval of the document from CMVM. The supplement approval process takes into account the fact that it arises at the specific time where CMVM’s fast reaction is off upmost importance to mitigate the potential disruption of such event. Therefore, supplements are approved very quickly after the emergence of a triggering event, allowing investors who have already presented subscription orders the right to withdraw them.
Investors who accepted the offer prior to the disclosure of the supplement have the right to withdraw their acceptance within not less than three working days following the disclosure of the supplement, provided that the significant new factor, material mistake or material inaccuracy arose or was noted before the closing of the offer period. That period may be extended by the Company or the Offeror. The final date to exercise the right of withdrawal must be stated in the supplement.
22.214.171.124.4. Listing application
In order for a Company’s bonds to be admitted to trading, a request for the listing of the bonds must be submitted to the stock market operator. In Portugal the operator is Euronext Lisbon, who will verify compliance with the general requirements for admission to trading.
In case of listing in Portuguese markets, to kick-off the admission to trading process, the Company first meets with Euronext to present the listing project and agree on a timetable regarding the admission to trading process.
The Company must appoint a Listing Agent (Euronext Lisbon) and a Listing Sponsor (Euronext Growth and Euronext Access) who will assist and guide the Company with the admission to trading and also help the Company to prepare the application form and all the documentation that must be submitted to Euronext Lisbon.
At the same time as the proceedings above, the Company needs to register its bonds with the Portuguese Centralised System of Registration of Securities managed by Euronext Securities Porto.
Euronext will decide on the application for admission to listing within a maximum period of 30 trading days (1 month for Euronext Growth and Euronext Access) after receiving the required documentation, unless agreed otherwise by the applicant Company and Euronext Lisbon.
In the event of a Public Offering of bonds, the admission to trading shall become effective only after the assessment of results and settlement of the offering.
126.96.36.199.5. Marketing and Communication Planning
Marketing and Communication strategy throughout the Bond Offering process is crucial as it enables the Company to manage investor relations; generate interest and mitigate perceived uncertainty.
In the context of a Bond Offering, it is of paramount importance that the Company, with the assistance of its advisors, diligently defines how to present and promote the offer to potential investors.
While the Prospectus is being drafted, a marketing strategy is designed to create investor interest and momentum. The Company and its advisors may draw up a presentation to use in meetings with investors, which includes exclusively contents presented in the Prospectus.
Marketing documents may be prepared, according to the type of offering, such as slideshow, dedicated websites, press releases and other communication materials, which may all be adjusted throughout the Bond Offering process.. Documents comprising advertising content are subject to prior approval by the CMVM.
The marketing strategy has a great impact in managing investor relations, generating interest and mitigating perceived uncertainty.
It should be highlighted that material information provided, directly or indirectly, by the Company to Institutional Investors or special categories of investors, including information disseminated at meetings, as well as information provided to financial analysts shall be disclosed to all investors to whom the offer is addressed.
Until the offer is made public, all the parties involved in its preparation need to:
As from the moment the offer is made public, all the parties involved in releasing information regarding the offer need to:
Additionally, when conducting pre-offering marketing activities, such as the ones described above, all the parties involved in the Offer need to assure the compliance with the EU Market Abuse Regulation (“MAR”) in what respects disclosure of inside information the context of a market sounding.
188.8.131.52.6. Early-look meetings with investors
The targeting of investors in debt offerings is not exactly the same as in an equity offerings. Whereas in the latter it is more common to have an offering to institutional investors (in parallel with the Public Offering) that plays a key role in the process and the success of an IPO, notably in the price determination thought the bookbuilding method, the role of these investors is much more limited in debt issuances.
This is without regards that the investors may be consulted, at an early stage, to assess and attract their interest in the issuer and bond issuance and, thus, help set the offer price.
Considering the offer structure, it may be advisable to prepare the Company’s Management for any meetings with potential investors (either internally or through a communication agency or other advisors) in order to create adhesion by investors.
These one-on-one confidential early-look meetings between Management and targeted investors aim to introduce the Company, explain its business model, assess the initial market sentiment on the Company’s story, ask for the investors’ feedback on several matters, such as the Bond Offering and the bond price, to understand how the market will assess and value the Company.
These early-look meetings may allow an early assessment of the potential success of the Bond Offering. Based on the potential interest noticed at these meetings, which may be spread out over time, the Company may adjust its Bond Offering project, and can postpone or even exit the process without a substantial financial commitment at this stage.
If the meetings generate a formal commitment of acceptance of the Offer, this information will appear in the Prospectus.