IPO AND CONDITIONS OF LISTING ON THE WARSAW STOCK EXCHANGE

Transcription

1 IPO AND CONDITIONS OF LISTING ON THE WARSAW STOCK EXCHANGE Contact: Danuta Pajewska Telephone: (+48 22) , (+48 22) Marcin Pietkiewicz Telephone: (+48 22) , (+48 22) Wardyński & Partners Warsaw, 27 April 2017

2 INTRODUCTION The Warsaw Stock Exchange (WSE) operates a regulated market of shares and derivative instruments.this guide gives an overview of what is involved in listing a company on the WSE. It is a practical manual covering all aspects of a float from prerequisites, through to life after the float. Since the first version of the Polish chapter of IBA s Float Guide was published in 2011, the WSE has faced a harsh market environment with a decreasing turnover of shares and falling capitalisation. In 2016 the annual share trading volume on the WSE was EUR 50.6 billion, which constituted a 32.5% decrease on The following years were characterised by large market fluctuations. At the end of March 2017, the total capitalisation of 486 domestic and foreign WSE main market listed companies was EUR billion. 2

3 Contents 1. EXECUTIVE SUMMARY... 3 What is an IPO in Poland?... 3 Why float?... 3 Does my company qualify?... 3 What will it cost?... 3 How long will it take?... 3 Who is on the float team?... 3 Is my company ready?... 3 What goes in the prospectus?... 4 What is due diligence?... 4 What is the company worth?... 4 How will the float be marketed?... 4 What else is involved?... 4 Will existing shareholders be able to sell? IPO AND CONDITIONS OF LISTING AND FLOATING IPO in general WSE listing and floating conditions Prospectus or information memorandum Company Structure Cost of Floating Timing IPO TEAM PREPARING THE COMPANY Corporate Structure Corporate Bodies Corporate Governance Best Practice of WSE Listed Companies Stock Option Plans...12 Method of offer...13 Implementation...13 Criteria for designation Dividend Policy...13

4 5. PROSPECTUS Prospectus Requirements...14 Exemptions from the prospectus regime...14 Content...14 Confidentiality...14 Forecasts...15 Audited financial statements...15 Drafting and verification of information included...16 Methods of publication Supplements Passporting of prospectus Liability DUE DILIGENCE Why is due diligence necessary? Prospectus Continuous disclosure PRICING The price in the prospectus Book building Final offer price MARKETING AN IPO Advertisements Road shows to institutional investors DEALING WITH THE FSA, WSE AND NDS Prospectus approval by the FSA WSE Requirements OFFER PERIOD LIFE AFTER THE IPO CONCLUSION...24 SCHEDULE 1. GENERAL FLOAT TIMETABLE

5 1. EXECUTIVE SUMMARY What is an IPO in Poland? An IPO in Poland includes an offer for newly issued shares as well as a sale of shares by existing shareholder(s). This process allows the raising of new capital for a company through the issue of new shares and may be an opportunity for existing shareholders to sell some or all of their shares. Why float? Floating a company allows: the company itself to raise new capital with relative ease; existing shareholders to sell and trade their holdings in the market; increasing company credibility and prestige; and promoting a company and its products or services. Does my company qualify? Generally, before a company can be floated on the Warsaw Stock Exchange ( WSE ) it must satisfy WSE requirements relating to capitalisation, size and shareholder spread and must adjust its corporate structure. What will it cost? As a rough guide, the costs of a float are likely to be from 5% to 15% of the funds raised. How long will it take? A well-run, reasonably simple float can be completed within 6 to 9 months. Larger, more complex floats will take longer. Who is on the float team? The company will need to choose its IPO team before commencing the IPO process. The team includes an offering broker (who may also act as financial adviser), accountants, lawyers and public relations consultants. Additionally, the company may decide to instruct an underwriter or a market maker. Is my company ready? Before floating, a company will need to review its: structure the company must be a joint stock company and adopt a share structure and statute allowing the company to be listed; corporate bodies the corporate bodies may need to be changed to include two independent supervisory board members and one with appropriate accounting expertise; the company must establish an audit committee with three or more members, including at least one independent member with appropriate accounting or auditing expertise; corporate governance the company will need to put in place appropriate corporate governance procedures for a listed company. 3

6 What goes in the prospectus? A prospectus must contain all information about the company that investors and their advisers would reasonably require to assess: assets and liabilities, financial position and performance, profits and losses as well as company prospects; and rights and liabilities tied to offered shares. The prospectus also contains a background on the company business, the industry in which it operates and its corporate bodies and management team as well as comprehensive information on the company and its potential. What is due diligence? Due diligence is the process of ensuring that a prospectus contains all information material to investors and that there are no material misstatements or omissions. It is necessary because the law requires a prospectus to contain true, accurate and complete information. What is the company worth? The financial adviser will generally help the company to set an appropriate offer price. The company may make either a fixed price offer or an open price offer of its shares. How will the float be marketed? There are significant restrictions on disclosing information on an IPO before the prospectus is published. These restrictions largely fall away once the prospectus is published. The marketing campaign, whether addressed to retail or institutional investors, cannot start until the prospectus is published. What else is involved? A company will need to liaise with the Polish Financial Supervision Authority (in Polish Komisja Nadzoru Finansowego, FSA ), the WSE and the National Depository for Securities (in Polish Krajowy Depozyt Papierów Wartościowych, NDS ) during an IPO to ensure that it satisfies their requirements, i.e. approval of prospectus or its passporting, registration of de-materialised shares in deposit, and allowance of shares to trade on a selected WSE market. Once a prospectus is finalised, it must be lodged with the FSA, the WSE and NDS. After its publication, a company may accept and process subscriptions. The offer period is generally 1 to 3 weeks. The WSE admits shares to trade subject to a company achieving a required shareholder spread and satisfaction of other listing requirements, including capitalization. Initial listings commence upon Company receipt of WSE consent on the condition that shares are paid in full, a share capital increase and new shares are registered in a court register and shares were registered at the NDS. Will existing shareholders be able to sell? IPO is an opportunity for existing shareholders to sell some or all of their shares. This process is employed to privatise state-owned companies, which are transformed into joint-stock 4

7 companies (in Polish: S.A.), whereby the State Treasury sells its shareholding through a public offering. 5

8 2. IPO AND CONDITIONS OF LISTING AND FLOATING The company will have to liaise with the FSA, WSE and the NDS during the IPO process to ensure that it satisfies their requirements. In order to establish that the company can be floated on the Warsaw Stock Exchange it must be verified whether it satisfies WSE requirements relating to capitalisation, size and shareholder spread and also that its corporate structure complies with applicable law and regulations. Generally, a company seeking listing must prepare and issue a prospectus relating to the shares in the company being offered. A passporting of a prospectus approved in another EU Member State is also possible. For an effective float an IPO team within the company lead by one or two executives should be established to cooperate with external advisers IPO in general An IPO in Poland includes an offer for newly issued shares as well as a sale of shares by existing shareholder(s). This process allows the raising of new capital for a company through the issue of new shares and can be an opportunity for existing shareholders to sell some or all of their shares. A public offering of shares in Poland is considered making information about shares and conditions for their acquisition available to at least 150 persons or to unspecified addressees, in any form and manner, with the information being sufficient for decisions to acquire such shares. In most cases, public offerings in Poland are associated with a listing of shares on the WSE. It is increasingly popular in Poland for companies listed on another EU regulated market to seek to list existing shares on the WSE without making a public offering. Generally, a company seeking a listing on the WSE must prepare a prospectus relating to the shares to be offered and listed. The following steps are required to list securities by way of an IPO on the WSE: drafting and approval of a prospectus or information memorandum or the passporting of a prospectus approved in another EU Member State to Poland, publication of the prospectus or memorandum, admission of the shares to exchange trading on the WSE, registration of company shares with the NDS, and compliance with the WSE s Best Practice of WSE Listed Companies corporate governance rules WSE listing and floating conditions A company must satisfy the WSE s requirements relating to capitalisation, size, shareholder spread and the adoption of necessary resolutions by the company s bodies before listing on the WSE. It must also ensure that its corporate structure is consistent with the applicable law and WSE listing rules. 6

9 WSE rules provide for different conditions for admission to trading on the main market (for large and medium size companies) as opposed to admission to trading on the parallel market (for small size companies). For admission to trading on the parallel market, shares must meet the following criteria: there is no limit on transferability of shares, and a minimum capitalisation requirement of PLN 60,000,000 or the equivalent of at least EUR 15,000,000 (understood as the product of the shares referred to in the application for admission to exchange trading and the forecasted market price of such shares, or the issuer s equity, if the price cannot be determined), except for issuers whose shares of at least one issue have been listed on another regulated market, or on the NewConnect market, for at least 6 months (minimum capitalisation requirement for those issuers: EUR 12,000,000), and shareholders spread: the aggregate interest of shareholders, individually holding less than 5% of the voting rights in the company, amounts to at least: 15% of the shares referred to in the application for admission to exchange trading, and 100,000 shares referred to in the application for admission to exchange trading with a total value of at least EUR 1,000,000 calculated on the basis of the last sale or issue price. Additionally, the company must meet a liquidity condition i.e. the shareholder structure of the company must provide for a sufficient basis for developing exchange trading liquidity. The WSE management board may waive these requirements, if it decides that listing without meeting the requirements will not jeopardize the interests of the trading participants. For admission to trading on the main market, shares must meet the criteria that apply to trading on the parallel market, as well as the following requirements: the admission of shares to trading covers all the shares in the same class, and shareholders spread: the aggregate interest of shareholders individually holding not more than 5% of the voting rights in the company is at least 25% of the shares referred to in the application for admission to trading, or shareholders, each of which may exercise not more than 5% of votes at general meeting, hold at least 500,000 shares referred to in the application for admission of total value at least EUR 17,000,000 based on the last sale, or issue price. This condition regarding the shareholders spread does not need to be fulfilled in Poland, if such free float is met on another main market in an EU Member State where the respective shares are traded. 7

10 2.3. Prospectus or information memorandum Prospectus Generally, a company that intends to offer and list its shares must prepare a prospectus on the basis of which the shares are offered to the public. It must file the prospectus with the FSA for approval. Following the approval of the prospectus the company must publish it. Information memorandum Under certain conditions, the company can, instead of drafting a prospectus, draw up and obtain approval of an information memorandum. An information memorandum may be submitted to the FSA for: a public offering exclusively addressed to shareholders of the target company in the course of a takeover by the issuer, and admission to trading of securities offered or delivered to existing shareholders or members of the target company in connection with a takeover. There are also some situations in which the company is obliged to draw up an information memorandum and make it available to the public without prior approval by the FSA. For instance: in case of an offer or a delivery of shares to shareholders on a free-of-charge basis (from company resources) or in case of an offer or delivery of securities of the same type as other securities already admitted to trading on the same market by the issuer or its affiliate to its directors or employees. The information memorandum must be drafted as a single document in Polish. The memorandum has a limited period of validity, which is not longer than 12 months from the day when it was made available to the public. A lack of Prospectus and Information memorandum In situations specified by law, there is no need to issue a prospectus or a memorandum to the public, in particular if the offer is addressed only to qualified investors, or the offer is addressed exclusively to investors, each of whom acquires shares whose value is not less than EUR 100,000 on the date of fixing the price, or the offer concerns securities whose nominal unit value is not less than EUR 100,000 on the date of its setting Company Structure The company's corporate structure and operations must be appropriate for the status of a company listed on the WSE. From the date of listing on the WSE the company will be subject to numerous new obligations such as provisions preventing insider trading and disclosure 8

11 obligations. For most companies, this requirement does not represent a significant obstacle, but more an aspect of thorough preparations Cost of Floating The cost of floating a company will include expenses directly incurred in relation to a float and costs of lost management time. Costs directly incurred by the float include court and administrative fees, adviser fees and promotion costs. Generally, the larger the IPO, the more cost effective is the fundraising. Average IPO costs range from 5% to 10% of the gross proceeds from the IPO Timing A well-managed IPO can be completed within 6 to 9 months. More complex floats will take longer. It is a complex process to list a company and it usually differs from ordinary business experience. Managing an IPO properly will keep the time required to do so to a minimum. To avoid disruption of operations, it may be practical to put the responsibility for managing the IPO on one or two executives, so that the remaining executives can attend to managing the day-to-day business. In terms of when to launch the IPO, the company should avoid a floatation when other major floatations are likely to absorb investment funds available on the market as well as floatation close to or during holiday periods. In case of passporting the prospectus the procedure is much shorter and the public offer may commence when the FSA receives the required documents. 3. IPO TEAM The company will need to choose its IPO team before commencing the IPO process. The team includes an offering broker (who may also act as financial adviser), accountants, lawyers and public relations consultants. Additionally, the company may decide to instruct an underwriter or a market maker. It is important to precisely define the role of each team member at the outset and to establish which sign-offs will be required from each team member. Offering brokers An IPO on the WSE requires mandatory intermediation by a broker possessing the FSA license to offer securities. During the IPO, the brokerage house is responsible for organizing the sale of shares, efficient entries and the listing of shares on the WSE. It also usually coordinates work on a prospectus and acts as a financial adviser. Lawyers A public offering of shares in Poland is governed by specific rules and regulations imposing several requirements on the company, both at the preparatory stage and at the stage the company obtains public status. Legal assistance includes the following: 9

12 conducting the legal due diligence review on the company and advising on legal issues that affect the prospectus, drafting and negotiation of contracts concluded between the company and other advisers and participants in an IPO, e.g. non-disclosure agreement, underwriting contract, any share option plans for management and key employees, preparation and drawing up of all legal sections of the issue prospectus as well as all necessary corporate resolutions, representation of the issuer before the FSA, the WSE and the NDS, assistance in preparing the issuer s corporate governance to comply with the standards required by law and WSE regulations, advice on principles, conditions and the fulfilment of notification obligations by the company in relation to the market, the FSA and the WSE, advising on the principles and mechanism regarding the protection and disclosure of confidential information and any other company information and on principles and conditions of the acquisition of shares by company authorities and key employees. PR consultants A company can also engage a public relations consultant to assist in making the IPO public and marketing the IPO. The role of a PR consultant is to ensure that a company obtains appropriate press coverage and to liaise with the media. Such consultants also help in publishing information and in ensuring the company meets deadlines for such publications in order to abide the principle of equal access of all investors to information on a company, which is vital for an IPO. Auditor Financial statements and forecasts, if included in the prospectus, will have to be audited and such auditor s opinion must be attached to the prospectus. It is possible that mid-term financial statements will also be audited. An auditor is important because financial statements and forecasts attract the interest of investors. Therefore, it is essential that financial statements and forecasts are audited by reputable auditors. Market makers In order to improve liquidity of shares to be traded on the WSE, the company may decide to enter into an agreement with a market maker. If the WSE board decides that the engagement of a market maker is required to grant share liquidity, it can require the company to engage such market maker. 10

13 4. PREPARING THE COMPANY In addition to complying with float prerequisites, the company will need to review its corporate structure as well as corporate governance rules and procedures prior to the launch of the IPO. We draw your attention to the fact that public trading is dematerialised in Poland. This means that shares are not printed on paper and trading occurs through electronic means. Therefore, a company listed on the Polish stock market remains in a contractual relationship with the NDS and is subject to its rules. It must also be decided whether or not to introduce an employee share ownership plan, an executive option scheme and a dividend policy. The company's statute, by-laws and internal regulations must be reviewed and amended or adjusted to comply with market laws and rules. New supervisory board members must be selected, who are independent and have proper accounting or auditor qualifications. They should be appointed as early as possible so that they are able to become comfortable with the float process. A decision on compliance with corporate governance rules should be made in advance Corporate Structure Joint stock company Any company seeking listing on the WSE that operates as a limited liability company (in Polish spółka z ograniczoną odpowiedzialnością, sp. z o.o. ) must convert into a joint stock company (in Polish spółka akcyjna S.A. ). This will require the approval of majority existing shareholders, or all, if the company by-laws so require, and the adoption of a statute allowing the company to be listed. This process takes around 6 weeks and must be completed before the prospectus is lodged with the FSA. Company by-laws The company's statute, by-laws and internal regulations must be reviewed, amended or adjusted to comply with market laws and rules. In particular, rights attached to shares in order to satisfy legal requirements must be adapted to those applicable toward listed companies. Share capital The company s share capital may need to be restructured so that: there are or will be an appropriate number of shares on issue after the IPO; there is only one class of ordinary shares to be offered or sold; no shares to be listed on the WSE have restrictions on transferability and all shares have the same vested rights Corporate Bodies There are a number of issues in relation to the management and supervisory boards that will need coverage in the period leading up to the IPO or immediately thereafter: 11

14 Independent supervisory board members generally, the Best Practice of WSE Listed Companies states that a supervisory board of a WSE listed company must include two independent members. They can be appointed before an IPO or, which can be well assessed by the market, at the first general meeting of shareholders after the IPO. The company should try to recruit independent supervisory board members with relevant expertise, experience and contacts. An important issue will be establishing a proper remuneration structure. Remuneration and service contracts the company will have to set remuneration levels for management and supervisory board members. It may also need to consider service contracts in order to ensure that important management board members are tied to the company for a reasonable time after the IPO and to conclude reasonable non-competition agreements. Audit committee a listed company must ensure that an audit committee is appointed as part of the supervisory board. One audit committee member must be independent and must have proper accounting or auditor qualifications, so it is important that the company appoints such person to be a member of the supervisory board and audit committee prior to the IPO process Corporate Governance Best Practice of WSE Listed Companies Companies listed on the WSE are required to inform the market on whether or not they intend to comply with the Best Practice of WSE Listed Companies, the WSE Best Practice, and if so, which rules to apply. The WSE Best Practice are based on the comply or explain mechanism, which means that the company would have to explain and justify any deviation from its rules to be in compliance with the WSE Best Practice. Arguments for waiving some WSE Best Practice rules used by foreign companies listed on the WSE are discrepancies between corporate laws of home state jurisdiction and those of Poland as well as prior obligations to follow other best practice rules on a different market that render some WSE rules difficult to observe. The company will have to disclose the extent of any non-compliance with the WSE Best Practice in its annual reports. The company will have to introduce appropriate corporate governance procedures and regulations of its corporate bodies Stock Option Plans Stock option plans may be established by listed companies and such schemes are often addressed to key company employees and managers. Usually, such plans may be structured on the basis of, among others, granting stock, stock options, warrants or convertible bonds. The aim of such schemes is to motivate employees or managers and to make them feel responsible for company performance and its results. It is also permissible for a foreign company (mother or sister of a company listed on the WSE) to offer shares to Polish residents (employees or managers) provided that the offer complies with the conditions listed below. 12

15 The scheme may also be construed as a right to purchase shares in the future at a preferential price. Method of offer Regardless of whether or not employees will be entitled to obtain shares or options under the option scheme because stock options are directly connected to shares and since the option for the acquisition of shares will be exercised by employees in Poland, the share option is governed by Polish law on public offers. Under Polish law, if an offer of shares or options to employees or managers is addressed to more than 150 persons in Poland or to unspecified addressees, in any form and manner, it constitutes a public offer and a requirement arises for a prospectus. Implementation Employment-related share options constitute employment related benefits and should therefore be applied in accordance with Polish Labour law. The employer should introduce such an employment-related share option plan in accordance with its internal division of authority. Therefore, such plan should be adopted in the same manner as other internal regulations on employee rights and obligations are adopted, i.e. Work Regulation or Remuneration Regulation (there is an obligation to adopt such Regulations in Poland if a company has at least 20 employees). If the scheme covers company management, a shareholders resolution or supervisory board s resolution will be required to adopt the scheme and, depending on the scheme structure, a contract with the eligible manager will be signed. Criteria for designation Although a decision on awarding options under plans may be at the sole discretion of the grantor, the criteria for the appointment of participating employees must not be discriminatory, either directly or indirectly, and must be introduced in accordance with the rule of equal treatment of employees. It is possible to introduce leaver provisions as well as to provide for good leaver provisions. It is also possible to make the exercise of options by managers conditional on performance targets being met. To avoid any ambiguities such targets should be indicated or it should be stated when/ how/ and by whom they will be indicated Dividend Policy A dividend policy is required before a company is listed on the WSE. This policy is usually described in the prospectus and will have an impact on the offer assessment by investors as well as on IPO pricing. Generally, management board members recommend a post-ipo company policy for dividends in consultation with existing shareholders, which will specifically determine the percentage of profit to be paid as a dividend. The factors determining the percentage will include past company practice, market expectations, the effect of a proposed pay-out ratio on share pricing, the ongoing capital requirements of a company and profit forecasts. 13

16 5. PROSPECTUS A prospectus must contain all information about the company that investors and their advisers would reasonably require to assess: assets and liabilities, financial position and performance, profits and losses as well as company prospects; and rights and liabilities tied to offered shares. The prospectus also contains a background on the company business, the industry in which it operates and its corporate bodies and management team as well as comprehensive information on the company and its potential. Identifying the risk factors is essential to avoid prospectus responsibility Prospectus Requirements Exemptions from the prospectus regime Under certain circumstances, a prospectus is not required. These exemptions are set out in the Public Offer Act and are similar to those enumerated in articles 3 and 4 of the EU Prospectus Directive. For example, a prospectus, its approval and public availability shall not be required: in the case of a public offer addressed exclusively to qualified investors; or if admission to trading is sought for shares representing less than 10% of all issuer shares of the same type admitted to trading on the same market; and rights to shares and preemptive rights thereto. Content The prospectus must contain true, accurate and complete information to assess economic and financial standing, assets and development prospects of the issuer and the guarantor of liabilities under the securities (guarantor) as well as rights and liabilities tied to the shares being offered. The prospectus must include all information actually known by the company management, IPO underwriters and brokers or other persons quoted therein. The need to include what can be reasonably uncovered gives rise to the need to make reasonable enquires (sufficient "due diligence"). The content and format of the prospectus are determined by the EU Prospectus Regulation. Information in the prospectus must be worded and presented in a clear, concise and effective manner. Confidentiality The prospectus must contain all information investors and professional advisers would reasonably expect to be included in a prospectus. Information cannot be withheld merely because it is deemed confidential. However, the company can apply to the FSA for an authorization not to publish certain information whose disclosure: would be contrary to the public interest; 14

17 would be seriously detrimental to the issuer - provided that the omission does not mislead investors in general as to facts and circumstances that are material to asses rights from securities or the situation of the issuer, securities holder or guarantor; or is of minor importance to a specific offering or admission to trading on a regulated market, but provided that the omission does not mislead investors in general as to facts and circumstances that are material to assess the financial standing and development prospects of the issuer, securities holder or guarantor. The application must be justified. If the FSA grants its authorisation, the information may be omitted. Forecasts The company can include a forecast or anticipated performance in the prospectus. This information primarily concerns future profit projections. Forecasts on a present or future business period are by nature highly uncertain. Anticipated performance concerns a period for which figures have not yet been published. It should be drafted in a manner ensuring comparability to historic data. Forecasts and anticipated performance should be comprehensible, simple and truthful, that is, they should be based on extensive analyses of issuer activity and present actual, and not hypothetical strategies, plans and risk analyses. The company should take the following factors into consideration in presenting forecasts: prior results, market analysis, change of strategy, market share and issuer position, the financial situation and its potential change, influence of a purchase or sale transaction, change of strategy or any vital change in environmental protection matters and technology, change in the legal and tax environment, and liabilities towards third parties. An issuer is liable for the inclusion of results or estimated results in the prospectus as well as for compliance with utmost diligence in ensuring that forecasts or anticipated performance do not mislead consumers. Forecasts or results must be audited. Failure to meet forecasts will have a significant effect on share price. If an issuer publishes information in the media that could directly or implicitly constitute an element of anticipated (current year) or forecast (future) profits, reference thereto should be made in a prospectus. Audited financial statements The prospectus must include audited financial statements of the company for the last three financial years. These financial statements should be updated to ensure comparability with results in preceding years. The review of historical information may include an audit if accounts were not previously audited. For prospectuses to be published in the fourth quarter of the year, mid-year financial information and comparable information for the previous year must be 15

18 included. Mid-year financial information may be unaudited, but this information must be indicated in the prospectus. Drafting and verification of information included An IPO team member usually, the offering broker coordinates the drafting of the prospectus. Other team members will be specifically responsible for drafting sections of the prospectus. The prospectus must include information that is true and accurate on the date of the prospectus approval. Before the prospectus is finalised, it undergoes a verification process. Verification involves checking of each material statement of fact or opinion in the prospectus by each team member to ensure that it is true and accurate. Methods of publication Immediately upon approval of the issue prospectus, the issuer make the issue prospectus available to the public. Submission and publication of the prospectus shall occur no later than on the date of commencement of subscription or sale of securities. The issuer shall make the issue prospectus available to the public at his own choice on a website of: 1) the issuer; 2) the investment firm that is offering the shares covered by the issue prospectus; 3) the company operating the regulated market on which the securities are to be admitted to trading; 4) the supervisory authority of the home member state of the issuer - if Poland is the receiving member state for the issuer. Additionally, the issuer may make the prospectus available in print at the seat of the WSE or at the seat of the issuer and also at the seat and at the customer service points of the investment firms accepting subscription orders for the securities covered by the prospectus. Moreover, the issuer may publish the prospectus in at least one Polish newspaper with national circulation. The prospectus has a limited period of validity, which is not longer than 12 months from the date when it was approved by the FSA Supplements The company is obliged to provide the FSA with information on material errors, or inaccuracies in the prospectus, as well as on material factors that could affect the assessment of the offer that took place or about which the company became aware of after the prospectus approval. Such information must be submitted to the FSA in the form of a supplement to the prospectus that must be approved by the FSA as well and published in the same manner as the prospectus. This supplemental information must be submitted by the date of: 16

19 allotment of shares, announcement that a subscription for or sale of securities has not taken place, or announcement of discontinuance of a subscription for or sale of shares by the company or on cancellation of the subscription or sale, or admission of shares to trading on the WSE. The supplement must be submitted to the FSA immediately, but not later than two business days after the event, or not later than two business days after the company learns of the errors in the prospectus or material factors justifying its submission. The FSA must approve the supplement in accordance with provisions regulating prospectus approval within seven business days Passporting of prospectus Where admission to trading on a regulated market is provided for in several EU Member States, the issue prospectus approved by the home Member State is valid for purposes of admission to trading in other EU Member States provided that the competent authority of the home Member State notifies the competent authority of the host Member States of the approval of the issue prospectus. In these circumstances, there is no need for the host Member States to undertake subsequent procedures approving an issue prospectus and the admission to trading is granted on the basis of one and the same prospectus. In case of passporting securities from other EU Member States, the FSA needs to receive from the competent authority in the issuer s home Member State: a notification document confirming the approval of the issue prospectus relating to such securities and defining the scope of information the omission of which from the issue prospectus has been authorised or which are not included in the issue prospectus on account of the nature of the issuer s activities, its legal form, the securities in question, or other reasonable considerations which justify omission of such information from the prospectus, a copy of the approved issue prospectus, drawn up and updated in compliance with the law of such EU Member State along with a translation into Polish at least of the summary of the information contained in the prospectus. The issuer or the selling shareholder is obliged to make available to the public the issue prospectus drawn up in Polish or English version. If the prospectus is drawn up in English, the summary note needs to be in Polish Liability There are several sanctions stipulated for violations of the rules governing the drawing up of the issue prospectus, its approval and its disclosure to the public. These include administrative sanctions for violation the law in connection with a public offering and criminal sanctions for delivering of an untrue data in the prospectus or for the proposal of the acquisition of securities without the approval of the prospectus. The entities responsible for the authenticity, integrity, and completeness of information contained in the issue prospectus, information memorandum and other documents drawn and 17

20 made available for a public offering of securities, or admission of securities to trading on the WSE, are responsible for losses caused by making available to the public information that is unreliable, untrue, or incomplete, or by omission of information, unless this entity or the persons for whom it is responsible are not at fault. The issuer is responsible for the whole prospectus. Nonetheless, persons preparing a summary or translation thereof shall be liable exclusively for damage caused in the event that such a summary or translation is misleading, inaccurate or contradictory when read with other parts of the issue prospectus. 6. DUE DILIGENCE Due diligence is the process of ensuring that a prospectus contains all information material to investors and that there are no material misstatements or omissions. It is necessary because the Public Offer Act requires a prospectus to contain true, accurate and complete information. Due diligence is one area of the float where costs have the potential to blow out. To avoid this, make sure your due diligence team is well informed about the business, understands what drives it and does not focus on insignificant issues. A team within the company lead by one or two executives should be established to cooperate with external advisers during the due diligence process Why is due diligence necessary? A due diligence (or enquiry) process is conducted to make sure the prospectus contains all information material to investors, complies with the legal requirements and no material information is left out of the prospectus. Due diligence review can and even should be carried out prior to the work on an IPO in order to eliminate identified legal flaws. Failure to eliminate such flaws could hinder the execution of an IPO process, increase risk and even affect the success of an offer. Due diligence review prior to an IPO should especially focus on areas covered by a prospectus as well as those that can be classified into categories of company risk described in the prospectus Prospectus The prospectus is prepared simultaneously with the due diligence investigations and is amended to reflect the findings of the reports and further investigations Continuous disclosure The due diligence process continues until the offer of shares closes. If the process uncovers new information that is materially adverse to investors after the prospectus is lodged, but before the offer closes, the company will need to prepare, approve and publish a supplement to the prospectus disclosing the new information. After the company is listed, it has an obligation to disclose immediately any information likely to have a material effect on the price or value of the company's shares. 18

21 7. PRICING The financial adviser will generally help the company to set an appropriate offer price. The company may make either a fixed price offer or an open price offer of its shares. You should get a broad understanding of the likely float price at the start of the process. The price is often adjusted towards the end of the process when the underwriter/financial adviser gets its feedback from institutional investors and other market players The price in the prospectus A fixed price is often used for smaller offers, i.e. the price per share is fixed in the prospectus. There is no need to specify the issue or sale price of securities or the final number of securities offered in the prospectus if: the prospectus specifies at least the maximum price or criteria and rules governing the definition of the final issue or sale price for securities or the final number of securities offered, or the prospectus indicates that a person who placed a subscription order prior to the public release of information on the price or number of securities offered to the public shall have the right to rescind a subscription order within two business days following the date when the information was released. The issuer or selling shareholder need to change the date of allotment of securities as appropriate in order to enable the investor to rescind its order. The final issue or sale price and number of securities offered should be made available to the public in the same manner the issue prospectus was made available. The price range set in the prospectus is based on the current and anticipated situation on the Polish and/or international capital markets and on an assessment of growth prospects, risk factors and other information relating to company activities. The offer period is divided into a retail and an institutional offer period Book building Subscriptions for offered shares in institutional tranches are usually preceded by a book building process in which investors place purchase declarations on the purchase of offered shares. The result of the book- building process is the basis for determining the final offer price. Often only investors who are eligible to acquire offered shares in the institutional tranche and who received an invitation to submit a purchase declaration from brokers may participate in book-building. During a book-building process among institutional investors, those interested in subscribing for shares indicate the number of shares they are willing to acquire and the price within the predetermined price range that they are willing to pay. Retail investors will not participate in the book-building process Final offer price The final offer price is determined by the company upon agreement with the underwriter and broker based on such factors as: 19

22 the size and price sensitivity of the demand from institutional investors as indicated during the book-building process, the current and anticipated situation on the capital market, and assessment of growth prospects, risk factors and other information relating to company activities in the prospectus. The final offer price cannot exceed the maximum price as provisionally specified in the prospectus. The price for retail applications can either be fixed or set at the price determined through the book building process. 8. MARKETING AN IPO There are significant restrictions on disclosing information on an IPO before the prospectus is published. These restrictions largely fall away once the prospectus is published. The marketing campaign, whether addressed to retail or institutional investors, cannot start before the prospectus or memorandum has been submitted to the PFSA. The company and the IPO team members must be extremely careful not to disclose any information that could be considered as price sensitive or which is not publicly available before prospectus publication. It is to avoid situations in which information in the prospectus were incoherent with published information. The marketing strategy is managed by the offering broker co-operating with marketing consultants. The right approach to marketing the float is critical to its success. Generally, the marketing strategy is dealt with by the broker in co-operation with marketing consultants Advertisements If promotional activities are conducted, all promotional materials should stipulate: that such materials are of a purely promotional or advertising nature, that the issue prospectus has been or will be published and where the issue prospectus is or will be available. Information presented as part of promotional activities must not contradict the information included in the issue prospectus and must not mislead investors as to the situation of the issuer and assessment of its securities Road shows to institutional investors A company and its advisers must make sure that they only disclose information in road shows that is contained in a prospectus. A broker/financial adviser assists a company in such presentations. Such presentations also help to gauge institutional interest in a floatation. Usually, an underwriter will formally commit to the floatation only if he receives indications from a road show that a substantial proportion of an offer will be subscribed by institutions or subunderwriters. 20

23 9. DEALING WITH THE FSA, WSE AND NDS The company will need to liaise with FSA, WSE and the NDS during the IPO process to ensure that it satisfies their requirements, i.e. registration of de-materialised shares in deposit, allowance of shares to trading on a selected WSE market. FSA, WSE and the NDS can help solve problems which arise. Talk to them early and keep them informed of progress Prospectus approval by the FSA To obtain approval of an issue prospectus drawn up as a single document, the issuer or selling shareholder shall file an application with the FSA containing in addition to the prospectus: business name and registered office of the issuer, business name and address of the seller and (in the case of an individual - forename, surname and address), specification of the type and designation of the shares covered by the issue prospectus, and name of the investment firm that will offer the securities covered by the application, and contact details of the issuer and seller, or the issuer s or seller s attorney appointed in the case, and in particular, the phone number, facsimile number and address, and other corporate documents and resolutions connected to the IPO. The FSA must hand down its decision within 10 business days from the date of the submission of the application. However, in the case of an IPO, the FSA must issue its decision within 20 business days after the submission date. If the issue prospectus fails to meet legal requirements, the FSA can demand revisions or the inclusion of further information in the issue prospectus (including supplemental documents or information concerning the financial or legal situation of the issuer). In such case, deadlines set for approval of the issue prospectus shall commence from the date when the additional documentation or demanded information is submitted to the FSA. In practice, the deadline of 20 days is a non-mandatory time limit and the approval process takes 2 to 3 months. The FSA refuses approval of an issue prospectus if it does not comply with legal requirements in form or substance. In case the prospectus is passported, there is no approval by the FSA see point 5.3. above WSE Requirements During the prospectus approval process by the FSA, the WSE reviews the prospectus and can request the company to supplement or amend it. 21

24 When deciding on an application for the admission of shares to WSE trading, the WSE takes the following into consideration: the company s current and projected financial standing, in particular, profitability, liquidity and creditworthiness as well as other factors influencing the issuer s financial results, company growth prospects, in particular, a feasibility study of investment plans with an account of financing sources, experience and competence of company managing and supervisory bodies, terms upon which shares were issued and their compliance with WSE rules, and the safety of exchange trading and interests of trading participants WSE Costs The company will have to bear the WSE s costs, which include costs of introduction onto exchange trading the one-off fixed fee is PLN 6,000 (EUR 1,500 approx.) plus 0.03% of the issue (sale) value, but not less than PLN 8,000 (EUR 2,000 approx.) or more than PLN 96,000 (EUR 24,000 arrpox.) Registration with NDS Before company shares are admitted to trading on the WSE, the issuer must conclude an agreement with the NDS to register securities for listing on the WSE at the securities depository (i.e. dematerialization of securities). In the case of certificated securities issued outside of Poland, securities certificates do not have to be placed in a deposit maintained by NDS if they were registered prior to conclusion of the agreement with the NDS with a foreign organization engaged in activities relating to centralised registration of securities or clearance of transactions in securities (e.g. Euroclear or Clearstream). 10. OFFER PERIOD Once the prospectus is finalised, it is filed with the FSA. After its approval or passporting it must be provided to WSE and NDS and published. The success of an IPO will usually depend on the level of institutional and broker support. Although some retail applications can be expected, they will often not appear until the end of an offer period because retail investors typically withhold funds until the last possible moment Prospectus approval and publication Once the prospectus is finalised, it is filed with the FSA. Alternatively, it is possible to passport a prospectus approved in another Member State to the FSA. After its approval or passporting it must be provided to the WSE and the NDS and generally made available to the public (including electronically) to allow the market time to assess the offer Offer Period An offer period is generally from 1 to 3 weeks. During that time, the broker offering an IPO markets it to institutional and retail investors and monitors the level of interest. 22