Initial Public Offerings 2020 Fourth Edition

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Contributing Editors: Ilir Mujalovic & Harald Halbhuber

With contributions by: Global Legal Insights Initial Public Offerings

2020, Fourth Edition Contributing Editors: Ilir Mujalovic & Harald Halbhuber Published by Global Legal Group GLOBAL LEGAL INSIGHTS – INITIAL PUBLIC OFFERINGS 2020, FOURTH EDITION

Contributing Editors Ilir Mujalovic & Harald Halbhuber, Shearman & Sterling LLP

Head of Production Suzie Levy

Senior Editor Sam Friend

Sub Editor Megan Hylton

Group Publisher Rory Smith

Creative Director Fraser Allan

We are extremely grateful for all contributions to this edition. Special thanks are reserved for Ilir Mujalovic & Harald Halbhuber of Shearman & Sterling LLP for all of their assistance.

Published by Global Legal Group Ltd. 59 Tanner Street, London SE1 3PL, United Kingdom Tel: +44 207 367 0720 / URL: www.glgroup.co.uk

ISBN 978-1-83918-047-7 ISSN 2399-9594

This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations. The information contained herein is accurate as of the date of publication. CONTENTS

Preface Ilir Mujalovic & Harald Halbhuber, Shearman & Sterling LLP Foreword Aseel M. Rabie, Securities Industry and Financial Markets Association (SIFMA) 1 General chapter Going public in the USA: An overview of the regulatory framework and capital markets process for IPOs, Ilir Mujalovic, Harald Halbhuber & Ana Aur, Shearman & Sterling LLP 6

Country chapters Australia Daniel Scotti & Nicole Sloggett, MinterEllison 26 Brazil Daniela Anversa, Veirano Advogados 38 China Shiwei Zhang, Zhong Lun Law Firm 49 Cyprus Demetris Roti, Yiota Georgiou & Rafaella Michail, Elias Neocleous & Co LLC 58 Finland Maria Lehtimäki, Niko Markkanen & Emilia Saloranta, Waselius & Wist 66 France Hervé Letréguilly & Séverine de La Courtie, Shearman & Sterling LLP 75 Germany Dr. Martin Steinbach & Dr. Mauritz C. Mann, Ernst & Young 88 Greece Nikos E. Pimblis & Nikos O. Xenoyiannis, Papadimitriou – Pimblis & Partners 99 Hong Kong Angel Wong & David Zhang, ONC Lawyers 108 Hungary Márton Kovács, Áron Kanti & Bálint Juhász, HBK Partners Attorneys at Law 118 India Arka Mookerjee & Pracheta Bhattacharya, J. Sagar Associates 127 Indonesia Barli Darsyah, Indrawan Darsyah Santoso, Attorneys At Law 139 Italy Marco Lantelme, BSVA Studio Legale Associato 152 Japan Toshimitsu Nemoto, Suguru Miyata, Kengo Ozaki & Tetsuya Tamura, Mori Hamada & Matsumoto 165 Korea Joo Hyoung Jang, Jisoo Yoo & Ji Hyun Youn, Barun Law LLC 178 Morocco Kamal Habachi & Salima Bakouchi, Bakouchi & Habachi – HB Law Firm LLP 189 Portugal Eduardo Paulino, Margarida Torres Gama & Inês Magalhães Correia, Morais Leitão, Galvão Teles, Soares da Silva & Associados 200 Singapore Wee Woon Hong, Opal Lawyers LLC 212 Switzerland Dr. Alexander von Jeinsen & Annette Weber, Bär & Karrer Ltd. 223 United Kingdom Pawel J. Szaja & Michael Scargill, Shearman & Sterling (London) LLP 234 PREFACE

e are pleased to present the fourth edition of Global Legal Insights – WInitial Public Offerings. An initial public offering is a key way for companies to raise capital in the global capital markets and list their shares for public trading. Although IPOs are conceptually similar whether made to investors in New York, London or Hong Kong, or in other long-established or newer markets around the world, the regulatory frameworks, market practices, investor communities and subsequent public-company obligations are far from homogenous across jurisdictions. The Initial Public Offerings book provides general counsels, investment bankers, lawyers, business professionals, the investing community and other advisers and interested parties with a detailed overview of the key steps, legal issues and market practices involved in the initial public offering process by examining practices in 21 jurisdictions around the world, with two general chapters focusing on the United States. Leading practitioners from each jurisdiction provide their expertise and guidance on navigating their local market practices and regulatory framework. Each chapter follows a similar structure: introduction of the IPO market in the relevant jurisdiction; description of the IPO process and key parties; discussion of the relevant regulators and key regulations; public company responsibilities; and potential risks, liabilities and pitfalls. We hope you find the book will equip you with an understanding of the legal and market fundamentals necessary for a successful IPO.

Ilir Mujalovic & Harald Halbhuber, Shearman & Sterling LLP Foreword

Aseel M. Rabie Securities Industry and Financial Markets Association (SIFMA)

Introduction Equity markets are the public face of finance and are often seen as a barometer of the overall health of the economy. In that sense, a thriving market for new issues of publicly offered equity securities, or the initial public offering (IPO) market, is perhaps the most direct and tangible evidence of an economy where new businesses have confidence in their future prospects. Businesses most often seek to access a larger pool of public capital to allow for the next stage of growth and, ideally, job creation follows. After a decline in annual deal volume and value between 2014 and 2016,1 the U.S. IPO market returned to pre-2015 levels in 20172 and continued to build momentum throughout 2018,3 20194 and the first quarter of 2020,5 until the IPO market was virtually shut down mid-March as a result of market volatility and uncertainty associated with the COVID-19 pandemic, an oil slump triggered by production increases by Saudi Arabia and Russia, and the resulting prospect of a recession. As the markets are expected to continue to be volatile and uncertain, the IPO market will likely face similar challenges, especially in the near term. Notwithstanding these fluctuations in IPO activity, history has shown that equity markets have played a central role during periods of significant economic expansion in the United States. The benefits of seeking public capital date back in history at least as far as 1602, when the Dutch East India Company was founded as a shareholder company. This diversified investor structure allowed the risks of trade voyages between Europe and Asia to be distributed across multiple mercantile organizations.6 Historians do not readily agree on when the first securities market began in the United States; however, according to at least one historian, securities transactions took place as early as 1725 in New York.7 At the time, a small number of securities transactions were intermediated by auctioneers who primarily conducted auctions for commodities that flowed through the ports of New York. While this form of intermediation was far less structured in the early days, a more formalized process began to emerge with the Buttonwood Tree Agreement in 1792, where 24 stockbrokers agreed on dealing terms. This organization is understood to have been the foundation of what would become the New York Stock and Exchange Board, or the New York Stock Exchange as we know it today.8 These arrangements provided an orderly mechanism to support the economic expansion that took hold in the United States during the 1800s. Tremendous investment in infrastructure and transportation led the way, while the New York Stock Exchange permitted the formation and growth of dozens of companies that became integral to the economy.

Emerging regulatory framework Despite the growing significance of the New York Stock Exchange and open criticism in the early 1900s of its failure to adopt more stringent self-regulation, structural government

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Securities Industry and Financial Markets Association (SIFMA) Foreword oversight did not come until the 1930s. Even the 1907 financial crisis focused attention on the banking system rather than the capital markets, and culminated in the Federal Reserve Act of 1912 and creation of the central banking system in the United States.9 The securities markets continued to innovate with minimal government oversight, and in 1924 the Massachusetts Investors Trust, which is believed to be the first modern-day mutual fund with an open-end capitalization structure, was created.10 Like the Dutch East India Company before it, the structure spread financial risks among a diversified pool of investors and for the first time provided smaller investors access to the securities markets. However, it was the 1929 stock market crash and the beginning of the Great Depression that would eventually spur an investigation and substantive review of the securities markets, as well as the role of the New York Stock Exchange therein. The subsequent passage of the Securities Act of 1933 and the Securities Exchange Act of 1934 created the foundation of the regulatory structure that we know today. Importantly, as the United States later experienced a post- war boom with the growth and development of new industries, this more fortified exchange structure saw greater public participation in the markets and reinforced the advantages of going public, and provided companies with access to a growing investor base.

Capital formation focus History has clearly associated a strong market for IPOs with a robust economic climate. Given relatively low economic growth following the 2007–2011 financial crisis, combined with the decline in emerging growth IPOs and diversion of global capital away from the U.S. markets, it is not surprising that many questioned whether our regulatory structure properly supported capital formation by providing efficient access to capital while upholding investor protections. An intense focus on capital formation thus began in March 2011, when the U.S. Department of the Treasury convened the Access to Capital Conference to bring together policymakers, academics and market participants to discuss ways to restore access to capital – especially for small and emerging growth companies. Following the conference, an IPO Task Force, comprising a diverse group of professionals, was organized to provide specific recommendations for restoring effective access to the public markets. In its publication titled, Rebuilding the IPO On-Ramp: Putting Emerging Companies and the Job Market Back on the Road to Growth, the IPO Task Force concluded that our regulatory structure was inordinately focused on the risks presented by the largest companies and suggested that regulatory obligations be tiered based on company size.11 The IPO Task Force also recognized that regulation should support efficient access to capital at each stage of a company’s growth cycle, from start-up to IPO, as well as across both private and public markets.

JOBS Act and beyond The Jumpstart Our Business Startups Act (or JOBS Act) was signed into law by President Barack Obama on April 5, 2012 and sought to implement many of the IPO Task Force’s recommendations. The JOBS Act provided reduced regulatory burdens for so-called “emerging growth companies,” created an enhanced Regulation A for small public offerings, and developed a regulatory structure for crowdfunding.12 While the true impact of the JOBS Act has been debated, calls continue for a further evaluation of how well our regulatory structure balances the goals of ensuring reasonable investor protections and promoting capital formation for companies of all sizes. More recent capital formation discussions seek to build on the JOBS Act and include several bills enacted as part of the larger negotiations for a transportation funding package known as the Fixing America’s Surface Transportation Act (FAST Act) in December 2015,13 as well as the proposed JOBS and Investor Confidence Act of 2018 (JOBS Act 3.0).14

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The last sweeping effort to modernize primary market regulation came with Securities Offering Reform in 2005,15 which significantly reduced the burdens of the registration, communications, and offering processes for companies. However, continued attention to capital formation issues, together with a desire to establish an incremental set of priorities and recommendations, has resulted in continued regulatory change, including disclosure updates and simplification pursuant to the FAST Act16 and amendments to the regulatory framework for public offerings to better allow issuers to gauge market interest in possible IPOs.17 At the same time, many companies continue to stay private longer and increasingly rely on raising substantial late-stage funding. Market participants and policymakers continue to look for ways to unlock hidden potential, permit capital to more readily flow to the best ideas, innovations and ventures, and offer expanded investment opportunities to retail investors while maintaining investor protections. The SEC’s Advisory Committee on Small and Emerging Companies devotes considerable attention to these issues and more recently, the U.S. Securities and Exchange Commission issued a concept release seeking public comment on ways to simplify, harmonize and improve the regulatory framework for securities offerings exempt from the registration requirements to facilitate an expansion in retail investment opportunities while ensuring appropriate investor protection.18 In addition, while capital formation discussions tend to focus on the primary markets and the requirements placed on issuers, there continues to be significant debate on ways to improve the secondary market structure to address changes in technology, investor behavior, and a host of other factors. Liquid secondary markets support robust primary markets and remain vitally important in fostering a market structure that underpins a competitive and healthy economy. The U.S. equity market is the largest by market capitalization and arguably envied for its dominance, but a rapidly changing environment necessitates thoughtful consideration and more proactive policies.

Looking forward It would be reasonable to conclude that securities markets will continue to be challenged to modernize given rapidly improving technology, the changing roles of intermediaries, and increasing globalization generally. In that regard, a number of market trends and their potential impacts also bear consideration. The rise of passive investing and lower-cost options for investing continue unabated. At the same time, activist investing is again on the rise and dual class share structures have emerged to allow founders to retain voting rights. Social issues are becoming a routine part of investment decisions, while greater attention to governance and the power and role of the proxy vote is increasingly impacting decisions by boards of directors and management, as well as the social and environmental direction of companies. The current administration’s pro-growth agenda necessitates an evaluation of securities regulation for both primary and secondary markets to create a market structure that can better support capital formation both now and in the years ahead. In that regard, regulators and policymakers should continue to consider how to best direct their resources to anticipate the needs of a changing economy through proactive modernization.

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Endnotes 1. Dealogic as of April 5, 2017. Includes SEC Registered IPOs > $25 million. Excludes BDCs, SPACs, MLPs, CLEFs, REITs. (1) Excludes Alibaba IPO ($25 billion).

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2. Renaissance Capital, 2017 IPO Market: Good, But Not Great (January 2, 2017) (https:// www.renaissancecapital.com/review/2017USReview.pdf). 3. Renaissance Capital, 2018 IPO Market Hits a 4-Year High Despite Bad 4Q (January 2, 2018) (https://www.renaissancecapital.com/Review/2018_US_Review_Press.pdf). 4. The Wall Street Journal, The 2019 IPO Frenzy Is Different From 1999. Really. (March 30, 2019) (https://www.wsj.com/articles/the-2019-ipo-frenzy-is-different-from-1999- really-11553918401); FactSet, U.S. IPOs Raised More Money in 2019, Despite a Decline in IPO Volume (January 9, 2020) (https://insight.factset.com/u.s.-ipos-raised- more-money-in-2019-despite-a-decline-in-ipo-volume). 5. Ernst & Young LLP, COVID-19 pandemic cuts global IPO momentum short in Q1 2020 (March 25, 2020) (https://www.ey.com/en_gl/news/2020/03/covid-19-pandemic- cuts-global-ipo-momentum-short-in-q1-2020). 6. Gelderblom, de Jong, and Jonker, The Formative Years of the Modern Corporation: The Dutch East India Company VOC, 1602–1623 (https://www.ris.uu.nl/ws/files/26913005/ Gelderblom_De_Jong_and_Jonker_Formative_Years.pdf). 7. George L. Leffler, The Stock Market (New York: The Ronald Press Co., 1951), Print; U.S. Department of the Interior, National Park Service, National Register of Historic Places Inventory – Nomination Form, New York Stock Exchange (March 1977) (https:// npgallery.nps.gov/NRHP/GetAsset/NHLS/78001877_text). 8. National Register of Historic Places Inventory – Nomination Form, New York Stock Exchange, supra. 9. Federal Reserve History, Federal Reserve Act Signed by President Wilson (November 22, 2013) (https://www.federalreservehistory.org/essays/federal_reserve_act_signed). 10. The Investment Funds Institute of Canada, The History of Mutual Funds (2017) (https:// www.ific.ca/en/articles/who-we-are-history-of-mutual-funds/). 11. IPO Task Force, Rebuilding the IPO On-Ramp: Putting Emerging Companies and the Job Market Back on the Road to Growth (October 20, 2011) (https://www.sec.gov/info/ smallbus/acsec/rebuilding_the_ipo_on-ramp.pdf). 12. Jumpstart our Business Startups Act, Pub. L. No. 112-106 (2012) (https://www. congress.gov/112/plaws/publ106/PLAW-112publ106.pdf). 13. Fixing America’s Surface Transportation Act, Pub. L. No. 114-94 (2015) (https://www. govinfo.gov/content/pkg/PLAW-114publ94/pdf/PLAW-114publ94.pdf). 14. JOBS and Investor Confidence Act of 2018, S. 488,th 115 Cong. (2018) (https:// www.congress.gov/bill/115th-congress/senate-bill/488) (passed by the U.S. House of Representatives and the U.S. Senate in non-identical forms; differences never resolved). 15. U.S. Securities and Exchange Commission, Securities Offering Reform (July 19, 2005) (https://www.sec.gov/rules/final/33-8591.pdf). 16. U.S. Securities and Exchange Commission, Disclosure Update and Simplification (August 17, 2018) (https://www.sec.gov/rules/final/2018/33-10532.pdf). 17. U.S. Securities and Exchange Commission, Solicitations of Interest Prior to a Registered Public Offering (September 26, 2019) (https://www.sec.gov/rules/ final/2019/33-10699.pdf). 18. U.S. Securities and Exchange Commission, Concept Release on Harmonization of Securities Offering Exemptions (June 18, 2019) (https://www.sec.gov/rules/ concept/2019/33-10649.pdf).

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Aseel M. Rabie Tel: +1 202 962 7300 / Email: [email protected] Aseel M. Rabie is a Managing Director and Associate General Counsel at SIFMA, where she is responsible for regulatory advocacy and other activities in the primary markets and research areas, as well as in the anti-money laundering and financial crime compliance areas. Prior to joining SIFMA, Aseel served as a senior counsel in the Securities and Exchange Commission’s Office of the General Counsel. There, she advised on legal and policy matters relating to SEC rulemaking activities, including rulemakings pursuant to the JOBS Act and the Dodd-Frank Act, as well as SEC enforcement actions. Previously in her career, Aseel served as the lead in-house counsel on corporate finance and securities law matters at a satellite communications company and worked on securities regulatory and enforcement, anti-corruption and other matters in private practice. Aseel has an undergraduate degree in economics from Harvard College and a law degree from Harvard Law School.

Securities Industry and Financial Markets Association 1099 New York Ave., NW, 6th Floor, Washington, D.C. 20001, USA Tel: +1 202 962 7300 / URL: www.sifma.org

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Ilir Mujalovic, Harald Halbhuber & Ana Aur Shearman & Sterling LLP

Introduction U.S. and foreign companies from a wide variety of industries choose to list on a U.S. exchange and sell shares to the public in the United States, seeking to capitalize on the large and varied investor base and liquidity of its capital markets. Companies seek to go public in the United States for a number of reasons, including: improved access to capital; broader investor base; ability to issue publicly tradable shares as acquisition currency; potential for higher company valuation with the elimination of illiquidity discounts; robust corporate governance standards; greater flexibility to offer employee equity incentives; broad research analysts coverage; and enhanced company prestige. The first initial public offering (IPO) in the United States took place in 1783; the New York Stock Exchange (NYSE) has existed for more than 225 years; and the NYSE and the NASDAQ Stock Market (NASDAQ) are the largest and second-largest exchanges in the world by market capitalization. Since 1960, more than 15,000 IPOs have been conducted in the United States. This chapter provides a broad overview of going public in the United States, including key trends and the performance of the IPO market in 2019, the current regulatory framework and public company responsibilities. It also covers certain prevailing practices and identifies potential liabilities and common risks. Many nuances, exceptions and technicalities have been omitted in favor of a concise presentation within the framework of this publication.

IPO regulatory trends: Streamlining and modernizing The U.S. IPO process is regulated by federal legislation, the U.S. Securities and Exchange Commission (SEC) and the U.S. stock exchanges. In recent years, legislators, regulators and the SEC have been taking steps to encourage capital formation in the United States by streamlining and modernizing the registration and offering process. Regulatory initiatives aimed at reducing the burdens of disclosure and the IPO process on issuers include the adoption of securities offering reform in 2005, the creation of the “smaller reporting company” category of issuers in 2008 (which was expanded to include more issuers in 2018), the passage of the Jumpstart Our Business Startups Act (JOBS Act) in 2012 and the Fixing America’s Surface Transportation Act (FAST Act) in 2015. The proposed JOBS and Investor Confidence Act 2018 (JOBS Act 3.0), which passed the U.S. House of

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Representatives (the House) with significant bipartisan support in 2018 and is currently in the U.S. Senate, signals a continuing desire to further streamline the going public process. In 2019, the SEC continued to carry out the legislative mandate of the FAST Act by adopting a series of amendments to “modernize and simplify” disclosure requirements. Among the amendments most relevant to IPO issuers is the ability to redact confidential information from filed material contracts without first filing and receiving SEC approval of a formal confidential treatment request, representing a significant simplification of the process. Issuers that fall within the “emerging growth company” (EGC) category, created pursuant to the JOBS Act for companies with total annual gross revenues of less than $1.07 billion (periodically adjusted for inflation) during their most recently completed fiscal year, have particularly benefited from this trend. The JOBS Act allowed EGCs to submit registration statements to the SEC confidentially for review before public filing, and to undertake “testing-the-water” (TTW) communications with institutional investors prior to the confidential submission or public filing of a registration statement, to gauge interest in an offering. The Encouraging Public Offerings Act (part of the JOBS Act 3.0), if enacted in its current form as passed by the House, would expand the range of benefits to EGCs, by, for example, extending the period of exemption from auditor attestation to the effectiveness of internal control over financial reporting from five to 10 years for certain EGCs, and extend some EGC benefits to non-EGC issuers, as well. Most significantly for non-EGC issuers, this Act would codify the SEC staff’s 2017 position which has permitted non-EGCs to also make confidential submissions of registration statements. The Act would also allow non- EGCs to engage in TTW communications, though this is now separately permitted by the SEC’s Rule 163B, adopted in September 2019. Another proposed part of the JOBS Act 3.0, the Fair Investment Opportunities for Professional Experts Act, would amend the definition of “accredited investor” to expand the number of individuals eligible for participation in private placements. Notably, in December 2019, the SEC separately proposed to expand the definition of “accredited investor” to permit natural persons to qualify basedon certain professional certifications and designations, as well as adding other categories of sophisticated investors, including a “catch-all” category of investors, among other changes. Some issuers fall into the smaller reporting company category, which, following the 2018 amendment, encompasses companies that (i) have a public float of less than $250 million, or (ii) have less than $100 million in annual revenues and either have no public float or a public float of less than $700 million. These companies also enjoy certain benefits, including scaled narrative disclosures and ability to provide audited financial statements for two, rather than three, fiscal years. In practice, however, because the definition of “smaller reporting company” encompasses far fewer issuers than the definition of EGC, the creation of the smaller reporting company category has been less significant to the IPO market than the creation of the EGC. Since the passage of the JOBS Act, more than 85% of all IPO issuers have been EGCs.

IPO market: Recent performance The U.S. IPO market is cyclical in nature and activity is influenced by many factors, including economic conditions, investor sentiment, market volatility and the geopolitical and regulatory climate. Following the passage of the JOBS Act, the IPO market experienced strong activity in 2013 and 2014 and faced a significant slowdown in 2015 and 2016, before returning to pre-2015 levels in 2017. The momentum continued to build in 2018 and the 2019 IPO market was initially off to an uncertain start, as markets were roiled by ongoing

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling LLP Going public in the USA trade tension between the United States and China and the U.S. government shutdown from December 22, 2018 to January 25, 2019, which created a backlog of IPO filings awaiting SEC review and potentially caused some issuers to postpone their offerings. However, despite challenges including continuing trade tension between the United States and China, slower global economic growth, geopolitical issues such as Brexit and social unrest in Hong Kong and a mild recession of the U.S. manufacturing sector, 2019 was ultimately another strong year for U.S. IPOs, particularly in terms of deal proceeds. Even though deal volume of 196 IPOs represented an 8% decrease relative to 214 IPOs in 2018, 2019 IPO proceeds totalled $56.3 billion, 4% more than in 2018, representing the biggest IPO year by dollars raised in the past five years. Nine megadeals (IPOs with more than $1 billion in proceeds), including the highly anticipated IPOs of Uber Technologies, Inc. (Uber), Lyft, Inc. (Lyft), Pinterest, Inc. (Pinterest) and the direct listing of Slack Technologies, Inc. (Slack), contributed 38% of total 2019 IPO proceeds. In some cases, dollars raised did not, however, immediately translate into investor value. Despite initial excitement, stock of some megadeal technology issuers fell, and steeply, following initial trading. This underperformance is consistent with the performance of the technology sector more broadly: most technology companies that went public in 2019 closed the year below their first-day opening prices, and at least nine closed below their IPO prices, even though NASDAQ overall climbed 35% to its highest performance since 2013. Such underperformance is indicative of rising public investor scrutiny of private valuations of companies, which, despite the surrounding hype, are in the red, often with no certain path to profitability. The failed IPO of the parent of the office sharing company WeWork was the culmination of such pushback from investors, who focused more closely on the company’s governance practices, financial performance and disclosures in the IPO prospectus. EGCs have been the predominant issuers in U.S. IPOs since 2012, with healthcare and technology companies making up the majority of offerings. In 2019, healthcare was the second-largest category of issuers by deal volume, and third-largest by deal proceeds, while technology companies represented the third-largest number of deals, but the largest amount of proceeds. In addition, private equity firms, commonly known as financial sponsors, have been, and continue to be, important players in the U.S. IPO market. Financial sponsors continued to participate in a considerable number of U.S. IPOs, backing approximately 42% of deals by volume and 60% of IPO gross proceeds. Financial sponsors were involved in all nine of the 2019 megadeals. Furthermore, special purpose acquisition companies (SPACs), which are blank check companies with no operations, have been increasingly active in the IPO market in recent years. SPACs raise capital from public investors with the intention of acquiring one or more unidentified companies with the IPO proceeds within a certain timeframe, typically two years. SPAC activity has been gaining momentum since 2017, when 32 SPAC IPOs raised about $6 billion. The trend continued in 2018, and in 2019, SPACs were the largest sector by deal volume, with 30% of all IPOs, and represented 21% of deal proceeds, second only to the technology, media and telecommunications sector. NASDAQ has been the exchange of choice for SPACs, attracting over 90% of all SPAC IPOs listed on a national stock exchange since 2011 and celebrating its 100th SPAC listing in 2018. Although SPAC activity has continued to be strong, its future growth prospects may be somewhat impacted by the SEC’s 2019 rejection of NYSE’s 2018 proposal to ease certain listing standards that SPACs need to comply with following their IPO. The NYSE was seeking to reduce the minimum number of shareholders required for continued SPAC listing

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling LLP Going public in the USA from 300 to 100 and allow the exchange to exercise discretion to allow issuers a reasonable period of time to demonstrate compliance with quantitative listing standards following a business combination. In addition, in July 2019, the SEC approved NASDAQ’s proposal to tighten certain liquidity-related listing standards, which, while not geared at SPACs, may complicate listing of SPACs that need to meet NASDAQ initial listing requirements at the time of closing of the business combination. Lastly, direct listings continue to be in the headlines, with the significant 2018 direct listings of Spotify Technology S.A. (Spotify), the 2019 direct listing of Slack and the potential 2020 direct listing of Airbnb, Inc. (Airbnb). A company that pursues a direct listing does not raise proceeds from investors; it only lists shares which have already been issued and are currently held by existing investors and insiders for trading on an exchange. Unlike a traditional IPO, a direct listing does not involve underwriters or a roadshow. Although direct listings are currently not that common, they have been subject to increased interest, especially in Silicon Valley, where a movement is developing to persuade company founders that direct listings are simpler than, and preferable to, traditional IPOs, often citing lower fees and more effective price discovery processes. It is not yet clear how prevalent direct listings may become. An initial 2019 NYSE proposal to the SEC, to allow the exchange to host primary direct listings in which companies can issue new shares and raise proceeds, not just list the shares held by its existing shareholders, was rejected. The NYSE filed a revised proposal in December 2019 and continues discussions with the SEC. If a revised proposal is accepted, this mechanism could become a robust alternative to the traditional IPO process.

IPO market: 2020 outlook The level of 2019 IPO activity initially boded well for 2020 IPO market expectations. Most of the first quarter of 2020 was very active, driven by optimism about the market’s near- term future, reflecting stronger-than-anticipated macroeconomic indicators and a backlog of IPOs, including IPOs of technology companies, which may have delayed their offerings in light of investor response to the withdrawal of WeWork’s attempted IPO. However, despite this strong start to the year, global primary equity markets came to a virtual standstill in mid-March as a result of the COVID-19 pandemic, which halted most U.S. economic activity, causing the U.S. government to provide a historic $2 trillion stimulus package to individuals and businesses. Against this backdrop, markets were further hit by a significant oil slump resulting from production increases by Saudi Arabia and Russia. Together, these developments drove the markets into bear territory and resulted in extreme volatility, driven primarily by uncertainty about the length and severity of the pandemic, its longer-term impact on the economy and the prospect of a recession. Although IPO preparation continues as issuers look to be prepared for more conducive markets, several companies, including Warner Music Group and Cole Haan, have already announced plans to postpone their IPOs. The IPO market has been virtually shut down since mid-March despite significant initial gains in the stock market after the news of the U.S. government stimulus package. The markets are expected to continue to be volatile and uncertain. As such, the IPO market will likely continue to face similar challenges, especially in the near term. Depending on COVID-19 and other developments, if the markets attempt to reset as the pipeline of IPOs seeks the next market window, the third quarter may see increased activity despite normally being a slower time and despite the fact that 2020 is an election year in the United States.

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Prior to the market shock delivered by COVID-19, 2020 was expected to bring offerings by Airbnb (which may conduct a direct listing), DoorDash, Inc. (food delivery), Maplebear Inc. (operator of Instacart, a grocery delivery service) and Postmates Inc. (delivery service). To the extent these IPOs still find a window to proceed in 2020, they are expected to be subject to continued increased investor scrutiny of technology stocks. This tone for any 2020 technology IPOs that do proceed has already been set by Casper Sleep, a mattress-in- a-box company, which set terms for its IPO that would give it a valuation of $741 million, below its latest private valuation of $1.1 billion. 1Life Healthcare, Inc., the parent of One Medical, a healthcare company, priced at the bottom of its expected range, but shot up in price on the first day. Although Silicon Valley brands receive significant coverage, the biggest IPO of 2020 could be that of GE Healthcare, GE’s imaging business, if IPO markets reopen later in the year.

The IPO process: Steps, timeline, parties and market practice All offers and sales of securities in U.S. interstate commerce must be registered with the SEC, unless an exemption from registration is available. The registration is effected through the filing of a registration statement on Form S-1 (Form F-1 for foreign private issuers (FPIs)) with the SEC. An IPO can consist of a primary offering, whereby the company registers and sells its own shares, and/or a secondary offering, whereby a company’s current shareholders register and sell their existing shares in the company. The U.S. IPO process, including drafting of the registration statement and readying the company for life as a public company, involves several parties and requires careful planning and preparation. Although the timeframe for going public varies from company to company, it typically takes three to four months following the organizational meeting, the formal start of the process, to complete the IPO. Moreover, depending on the company’s level of public company readiness, the IPO planning process could take an additional 12 to 18 months prior to the IPO kick-off meeting. During this planning stage, companies may prepare SEC- compliant financial statements, review and optimize their corporate governance and capital structure, consider takeover defenses, implement communications guidelines, consider whether they may need to change their auditor, address whether the IPO will require any waivers by, or confer any rights on, third parties under existing agreements, obtain liability insurance for the company’s directors and officers, make preliminary decisions about executive compensation matters and engage one or more investment banks to assist the company in the IPO process. Key parties Every company pursuing an IPO must assemble a working group consisting of internal employees, including members of management and accounting staff, the board of directors and outside professionals, typically including underwriters (investment banks that act as a bridge between the company and/or selling shareholders and the investing public by purchasing the IPO shares from the company and/or the selling shareholders and reselling them to the public), company counsel, underwriters’ counsel, independent auditors, a transfer agent, a financial printer and sometimes others, such as IPO advisory firms. The outside advisors will preferably have well-established IPO and industry experience. IPOs in the United States are typically underwritten by investment banks and the selection of underwriters is a key decision point in the offering process. The company selects underwriters (referred to as the lead bookrunners), in consultation with its counsel and any IPO advisory firms, to manage the process and marketing efforts for the IPO. In addition, there is a larger syndicate of additional underwriters. The lead underwriters help draft the

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling LLP Going public in the USA registration statement and the prospectus, assist with and accompany the company on the roadshow, generally manage the IPO process, market the IPO to potential investors, support trading in the company’s shares after the IPO, and may continue to work with the company on subsequent transactions. Although independent from the underwriting teams that are working on the IPO, some of the underwriters’ research teams will also typically initiate ongoing research coverage of the company following a “blackout” period immediately after the IPO, when such activities are restricted. Underwriters are compensated through a spread. To create this spread, the company or selling shareholders sell the IPO shares to the underwriters at a discount to the public IPO price at which the underwriters will resell the shares. This is memorialized in an underwriting agreement as described later in this chapter. As noted above, an alternative to the typical underwritten IPO is the direct listing of shares on a stock exchange. In a direct listing, there are no underwriters that would engage in a book-building process. The company does not issue new shares to raise proceeds; it merely lists the shares already held by its investors and insiders for trading on a stock exchange. Although an initial NYSE proposal to the SEC to permit direct listings to include new shares and raise proceeds was initially rejected, the NYSE has submitted an amended proposal and continues its discussions with the SEC. Although investment banks may be involved in the process, they would typically act as financial advisors to the company and not as underwriters distributing IPO shares. This approach can be attractive to companies because it does not involve underwriting fees, a roadshow, underwriter-imposed lock-up periods (the absence of which offer existing shareholders greater immediate liquidity), listing prices (which, in a traditional IPO, according to some research, are often discounted below their intrinsic value) or the issuance of new shares (which results in dilution to founders and other pre-IPO shareholders). On the other hand, without a marketing or roadshow process and stabilization by investment banks, shares that are directly listed could be subject to more volatility than those sold in an underwritten IPO, as there will have been no pre-trading price discovery through a book-building process. The selection of experienced company and underwriters’ counsel is also very important as those attorneys will be primarily responsible for drafting the registration statement and the prospectus and shepherding it through the complex SEC review process on the company’s behalf. The time and expense associated with preparing, auditing or reviewing, as applicable, the financial statements required to be included in the registration statement can be substantial, although less so if the company has an established relationship with the selected independent auditors prior to the IPO. The company may decide to change auditors prior to the IPO in the event its current auditor lacks the relevant IPO experience or name recognition with the underwriters or IPO investors. Key tasks from filing to closing Drafting the registration statement is a joint effort by the working group. The working group will produce several drafts of the registration statement before its initial filing or submission with the SEC. In 2017, the SEC staff issued guidance that expanded the non- public review process for draft registration statements for IPOs to all issuers, including non-EGCs. This guidance will be codified in a statute if the Encouraging Public Offerings Act is enacted as part of the JOBS Act 3.0. Companies that have confidentially submitted registration statements are required to file the registration statement publicly at least 15 days prior to the commencement of the roadshow, at which time previously confidentially submitted registration statements will become public. An FPI may also submit a registration

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling LLP Going public in the USA statement for confidential review without the 15-day pre-roadshow waiting period if the FPI is already listed (or is concurrently listing its securities) on a non-U.S. securities exchange or if the FPI can demonstrate that the public filing of an initial registration statement would conflict with the law of an applicable foreign jurisdiction. Registration statements that are not submitted on a confidential basis become publicly available on the SEC’s website immediately after filing. See “Regulatory architecture: Overview of the regulators and key regulations” below for more information. The SEC’s purpose in reviewing registration statements is to ensure adequate disclosure, not to determine whether the IPO shares are a worthwhile investment. Approximately 30 days after the initial filing or confidential submission, the SEC will provide the company with a comment letter on the registration statement, which can cover a wide variety of disclosure topics, including comments on the description of the business, risk factors, financial statements and other topics. The working group will prepare and file an amendment to the registration statement to address the SEC comments, and the SEC will in turn provide additional comments upon further review. This process repeats itself until the SEC has no further comments, which typically requires at least two to three amendments over approximately two months, but can take significantly longer if the SEC has extensive or complicated comments to resolve. Comments regarding accounting issues or otherwise relating to financial information usually take the longest time to address. During the SEC comment process, the company will also typically apply to list the IPO shares on either the NYSE or NASDAQ. As described below in “The registration process and publicity – Pre-filing period,” EGCs are permitted to engage in TTW communications with qualified institutional buyers and institutional accredited investors prior to or after confidentially submitting or publicly filing a registration statement. The permission to engage in such TTW communications was expanded to non-EGCs when the SEC passed Rule 163B in 2019, and may be further codified if and when legislators pass the Encouraging Public Offerings Act (as partof the JOBS Act 3.0). During TTW meetings, an issuer and its underwriters may seek non- binding indications of interest from potential investors to assist in the determination of the appropriate price, volume and market demand for the offering. However, an issuer and its underwriters are not permitted to take or solicit any orders for, or promise allocation of, any securities. The TTW meetings should be informational in nature and limited only to information that is contained in, or can be derived from, disclosure in the registration statement. TTW meetings are typically conducted after the confidential submission of a registration statement, although they could be conducted earlier as well. Once all SEC comments are cleared, the preliminary prospectus, which includes a price range for the IPO shares based on the company’s valuation and the desired deal size, taking into account anticipated investor demand and stock performance following the IPO, is printed and used by the underwriters and the company to commence the roadshow and market the IPO to potential investors. During the roadshow, which typically lasts seven business days, the underwriters will note indications of interest from investors in a process referred to as “book-building.” The book-building process gauges how much demand exists for the offering, and at the conclusion of the roadshow, the underwriters, the company and any selling shareholders agree on the price at which the underwriters will sell the IPO shares to the public. The company and lead underwriters then request the SEC to declare the registration statement effective, and after the registration statement has been declared effective, the IPO is priced, the underwriting agreement is executed and a pricing press release is issued to the market. The IPO shares begin trading on the selected exchange the

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling LLP Going public in the USA day after pricing on a when-issued basis. At this point, the working group prepares and files a final prospectus with the final offering price and distributes it to investors. Upon closing of the IPO, the company and any selling shareholders transfer the shares to the underwriters and the underwriters deliver the net proceeds to the company and any selling shareholders. SEC rules prescribe a standard settlement cycle of two trading days following the first day of trading for most broker-dealer securities transactions, unless otherwise expressly agreed to by the parties at the time of the transaction. Firm commitment underwritten IPOs are not required to settle on this two-day cycle, but all underwriters in the United States have adopted the two-day settlement cycle, including for IPOs.

Regulatory architecture: Overview of the regulators and key regulations Key regulations overview The key statutes that govern the IPO process and U.S. securities markets generally are the Securities Act of 1933, as amended (Securities Act), and the Securities Exchange Act of 1934, as amended (Exchange Act). The Securities Act regulates the securities offering process, including IPOs, and requires the registration of offers and sales of securities with the SEC, unless an exemption from registration is available. The Exchange Act regulates the secondary trading market and requires companies with securities listed on a U.S. exchange to comply with ongoing SEC reporting obligations. Public companies are also subject to the requirements of the Sarbanes-Oxley Act of 2002 (SOX), including, among other things, a prohibition on loans from the company to executives and directors, requiring that companies have independent audit committees, heightened independence standards for external auditors, and rules on internal control over financial reporting. The JOBS Act eased restrictions and disclosure requirements imposed by the statutes discussed above for companies that qualify as EGCs by, among other things, introducing scaled disclosure requirements, allowing for non-public SEC review of draft registration statements (which has since been expanded to non-EGCs by SEC guidance that will be codified by the JOBS 3.0 Act, if enacted), and permitting TTW communications, as described in more detail below. A company loses EGC status on the earlier of: (i) the last day of the fiscal year during which it had total annual gross revenues of more than $1.07 billion; (ii) the last day of the fiscal year following the fifth anniversary of its IPO; (iii) the date on which it issued more than $1 billion in non-convertible debt in the previous three-year period; or (iv) the date on which it is deemed to be a “large accelerated filer” (essentially an issuer that has been public for a year and has a public float of its common equity of $700 million). In addition, the FAST Act and SEC staff guidance permit a company to omit from draft registration statements annual and interim financial statements and related information, including management’s discussion and analysis, that the company reasonably believes will not be required to be included at the time of the contemplated offering (in the case of EGCs) or at the time of the first public filing of the registration statement (for non-EGCs). This accommodation is granted for financial statements because they will have been superseded by more recent information. Key regulators and listing authorities in the IPO process The chief regulator involved in the IPO process in the United States is the SEC, which is charged with safeguarding market integrity, protecting investors and promoting capital formation. The Securities Act requires that before any shares are sold to investors, there must be an effective SEC registration statement. The SEC staff reviews and comments on the disclosures included in the IPO registration statement filed by the company before declaring it effective.

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FINRA is a not-for-profit self-regulatory organization that regulates member broker-dealers, including the underwriters in an IPO. FINRA’s Corporate Financing Rules require member firms that participate in public offerings of securities to file the offering documents, including the registration statement and underwriting agreement and certain other agreements between the underwriters and the company, with FINRA for review. This filing must take place no later than three business days after filing or confidential submission of each registration statement with the SEC. In the case of an IPO, the company will be required to pay a non-refundable filing fee to FINRA that is based on the offering size of the IPO listed in the registration statement (including any overallotment), or for confidential submissions, an estimate of the same. FINRA will review the underwriting arrangements and documentation to ensure that they are not unreasonable and that the underwriting compensation paid to the banks is not unfair or unreasonable. In addition, if one of the underwriters of the IPO has a conflict of interest, FINRA requires specific, prominent disclosure to be included in the registration statement regarding the nature of the conflict of interest and other information. In the absence of an applicable exemption, FINRA then also requires that a bank that does not have a conflict participate in the offering as a qualified independent underwriter. The underwriters must have received a FINRA “no objections” letter before the SEC will declare the registration statement effective and the IPO can be priced. In addition to SEC and FINRA review, companies must also complete a separate application process in order to list their securities on a U.S. exchange. The two major exchanges in the United States for common stock listings are the NYSE and the NASDAQ, which have similar, though not identical, listing standards. Companies in certain industries more frequently opt to list on one over the other. The listing standards include both quantitative requirements, such as minimum thresholds for the number of publicly traded shares, stock price, number of shareholders, net income and other financial metrics, and qualitative requirements, such as compliance with the exchange’s continued corporate governance standards. Typically, the listing process takes between four to six weeks and the company must pay an application fee. Key documentation Registration statement and prospectus The most important document in the IPO process is the registration statement, of which the prospectus – the primary disclosure and marketing document investors will see in connection with IPO marketing – constitutes the main part. The prospectus describes, among other things, the company’s business, financial statements and condition, risk factors, management, capital stock and the offering. SEC rules require the prospectus to be written in “plain” English to facilitate investors’ ability to make an informed investment decision. The prospectus begins with a summary of the business, including its competitive strengths and strategies (commonly referred to as “the equity story”), the offering and summary financial information, which may include measures that are not required, but may be helpful in marketing, such as non-GAAP numbers or operating statistics. Risk factors are another key section of the prospectus. This section describes the major risks of investing in the company, the offering and the company’s shares. These risks may include having a limited operating history, operating in a highly competitive or regulated industry or being dependent on a few key employees or a limited number of suppliers or customers. Ultimately, however, the risks will be company-specific and will depend on the company’s industry, size, profile and other factors. This section serves as the best means to avoid potential liability by ensuring that investors are aware of potential material risks.

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The prospectus must also present audited financial statements (covering three years of income statements and two years of balance sheets) and unaudited financial statements for any interim periods, or a shorter period depending on the company’s operating history. EGCs enjoy reduced disclosure requirements, including being required to include only two years of audited financial statements instead of three. A related section presents management’s discussion and analysis of the company’s financial condition and result of operations, focusing on business trends and year-to-year and interim comparisons of operating results, liquidity and capital resources, cash flows and contractual and debt obligations, among other items. The prospectus must also disclose comprehensive information about the compensation of the company’s chief executive officer, chief financial officer and the company’s next three most highly paid executive officers, the pay ratio between the chief executive officer and the median compensation of all employees other than the chief executive officer, grants of stock options and stock appreciation rights, long-term incentive plan awards and pension plans, and employment contracts and related arrangements. EGCs are subject to less onerous disclosure requirements for executive compensation, including no requirement for a compensation discussion and analysis section. The prospectus must also disclose: the company’s capital structure; intended use of the proceeds from the IPO (for a primary offering or the primary portion of a combined primary and secondary offering); anticipated dividend policy; certain transactions with related parties; current and post-offering shareholdings of directors, officers and significant shareholders; a description of the rights and restrictions of the shares being offered, for example, voting rights and transfer restrictions; and a description of the underwriting arrangements and lock-up agreements. Finally, the company must file certain documents as exhibits to the registration statement, including its certificate of incorporation and bylaws, the underwriting agreement and certain material contracts. The company may redact any portions of such contracts which contain confidential information that is not material to investors but would be competitively harmful if disclosed – a process which has become significantly less burdensome after amendments in May 2019, which now permit such redaction without first filing, and receiving SEC approval for, a confidential treatment request. As noted above, issuers may submit their IPO registration statements to the SEC for confidential review prior to the first public filing. Submitting the registration statement with the SEC confidentially may be beneficial to the company and the underwriters for many reasons. For example, the company may want to delay disclosing the description of its business, detailed financial statements or other commercially sensitive information or the fact that it is preparing to go public to competitors and the public for as long as possible. The ability to delay public knowledge that the company is preparing an IPO generally allows for greater flexibility to complete the offering when the company is ready and market conditions are optimal. There is also less risk of potentially detrimental scrutiny by investors or media should the offering be postponed or the registration statement withdrawn while under confidential review. The first public filing must occur no later than 15 days prior to the commencement of the roadshow (except for certain FPIs, as discussed above). All previously submitted confidential drafts will be made public at that time. Form 8-A The company must also file a Form 8-A which registers the IPO shares under the Exchange Act and enables the company to list the securities on a U.S. exchange. This is a very short form that generally incorporates information from the IPO registration statement.

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Underwriting agreement and lock-up agreements The underwriting agreement memorializes the underwriters’ commitment to purchase the IPO shares, the price the underwriters will pay the company and/or the selling shareholders for the shares and the price at which they will resell them to the public. The underwriting agreement also customarily includes extensive representations and warranties by the company and the selling shareholders, if any. The representations are similar to those that would be included in a merger agreement or stock purchase agreement for the sale of the company, subject to the appropriate materiality exceptions. The agreement also includes covenants (including a company lock-up), indemnification provisions and closing conditions. The company (through the underwriting agreement) and individual directors, officers and shareholders (through individual lock-up agreements) agree with the underwriters that they will not issue or sell any shares during a period commencing at execution of the underwriting agreement or lock-up, as applicable, and extending for, typically, 180 days following the pricing of the offering. The lock-up agreements include customary exceptions, and sometimes additional exceptions are negotiated by the parties. The underwriters will generally require the lock-up agreements to be executed prior to the filing or the confidential submission of the registration statement with the SEC, and in any event no later than the launch of the roadshow, so that while marketing the offering they can address the investor concern that a large supply of shares could be sold on the market shortly after the IPO, potentially depressing the trading price. Auditor comfort letter and legal opinions and negative assurance letters The underwriters will also request the company’s external auditors to provide a “comfort letter” containing certain assurances about the accuracy of the financial information in the registration statement. In addition, company counsel and underwriters’ counsel issue opinion letters to the underwriters expressing legal conclusions about the company, the IPO and the securities, as well as negative assurance letters, confirming that counsel have undertaken certain due diligence procedures and that, following such procedures, they have no reason to believe that the offering document contains any misstatements or omissions of material facts. Opinions from in-house counsel, regulatory counsel, intellectual property or other specialized or local counsel may also be needed depending on the particular circumstances of the transaction. The registration process and publicity The requirement that the offer and sale of securities should be made only pursuant to a statutorily compliant prospectus that is filed with the SEC as part of the registration statement, often referred to as a “Section 10(a) prospectus,” is a core tenet of U.S. securities law and the registration process. Soliciting orders from investors before a compliant prospectus is filed is commonly referred to as “gun jumping.” There are different rules and limitations on publicity and communications to prevent gun jumping at various stages of the registration process. Section 5 of the Securities Act provides the framework for publicity restrictions during the following three periods of the registration process: • pre-filing or “quiet” period: from the time the decision is made to proceed with the IPO and until the public filing of the registration statement with the SEC; • post-filing or “waiting” period: after the public filing of the registration statement but before the registration statement has been declared effective by the SEC; and • post-effective period: immediately following the SEC’s declaration of effectiveness of the registration statement and ending 25 days thereafter.

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Pre-filing period The Securities Act prohibits companies from “conditioning the market” by creating investor interest in a security prior to the filing of the related registration statement with the SEC. Specifically, Section 5(c) of the Securities Act makes it unlawful for any person “to offer to sell” a security unless a registration statement has been filed. A confidential submission is not considered a filing of a registration statement for purposes of Section 5(c). The concept of “offer to sell” is interpreted very broadly by the SEC and includes any type of communication that may condition the market for the securities, even if the specific security is not mentioned in the communication. Both oral and written communications (including through print, radio, television and the internet) fall into the definition of “offer” and include, among other items, press releases, media interviews and public speeches, employee newsletters and media campaigns. For this reason, it is imperative that the company’s publicity restrictions and guidelines are designed to help ensure that communications do not contain statements viewed as conditioning the market, and that senior management, directors and employees of the company who are expected to be in contact with the press or otherwise communicate on behalf of the company must be educated on such publicity restrictions and guidelines. During the pre-filing period, each communication should also be analyzed by company and underwriters’ counsel to determine whether it would be seen as an attempt to condition the market or whether an exception to the publicity restrictions would apply. There are three primary exceptions to the publicity prohibitions in the pre-filing period: (i) a 30-day bright line safe harbor under Rule 163A of the Securities Act for communications that do not reference the offering and are made more than 30 days prior to the public filing of the registration statement; (ii) a safe harbor under Rule 169 of the Securities Act for the regular release of factual business information (but not forward-looking information) that is of a type the company has released or disseminated previously and is materially consistent in timing, manner and form with such past releases or disseminations and is intended for use by customers or suppliers, or other individuals, but not in their capacities as investors or potential investors; and (iii) a safe harbor for a pre-filing announcement of a planned offering by the company that contains limited information as set forth in Rule 135 of the Securities Act (e.g., name of the company, title, amount and basic terms of the securities, anticipated timing, etc., but not including the names of the underwriters). There are also additional exceptions for any preliminary negotiations with the underwriters and responding to unsolicited factual inquiries from the news media and other third parties. The JOBS Act introduced a “testing the waters” exception to the gun jumping communication restrictions of Section 5 of the Securities Act. This exception allows EGCs to “test the waters” by communicating with qualified institutional buyers and institutional accredited investors about the IPO prior to or after confidentially submitting or publicly filing a registration statement. The permission to engage in TTW communications was expanded to non-EGCs when the SEC passed Rule 163B in 2019, and may be further codified if and when legislators pass JOBS Act 3.0. The SEC often reviews TTW materials, and the information included in such materials is subject to anti-fraud liability. Accordingly, company and underwriters’ counsel should review such materials to ensure consistency with the registration statement. Post-filing period After the company publicly files the registration statement, the post-filing, or “waiting,” period commences and continues until the registration statement is declared effective by the SEC. During this time, oral communications are permitted but no written communications

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling LLP Going public in the USA other than a statutorily compliant prospectus in the form included in the registration statement may be used to offer the IPO securities. In limited circumstances, other written materials may also be used if they are filed with the SEC, but this rarely happens in practice. The prohibition of written communication extends to broadcast communications, including radio or television, as well as to advertisements, notices and letters. It also covers communications via modern technology, such as social media posts, text messages and email. While oral communications are permitted during the post-filing period, they should be consistent with the information included in the statutory prospectus, given that such communications are subject to the anti-fraud provisions of the U.S. securities laws. In addition to oral communications, after the public filing of the registration statement, Rule 134 of the Securities Act provides a safe harbor for notices that contain limited information on the company and the offering, such as the name of the company and managing underwriters, a schedule of the offering and use of proceeds, and a mandatory legend set forth in the rule. Rule 134 notices typically take the form of a press release announcing the filing of the registration statement and should be reviewed by both company and underwriters’ counsel prior to release to ensure compliance. Post-effectiveness period After the registration statement is declared effective by the SEC, the distribution of written materials is generally permitted as long as the final prospectus accompanies or precedes delivery of such materials. In addition, dealers are required to deliver a prospectus in any securities transactions that take place within 25 days after the effective date of the registration statement. As a result, companies typically limit communications during this period to avoid any inconsistencies with the prospectus. Risks and sanctions The SEC takes the Section 5 publicity restrictions very seriously, and violations can have significant consequences, including having to delay the offering, providing investors with potential rescission rights under Section 12 of the Securities Act (described in more detail below under “Potential risks, liabilities and pitfalls”) and being subjected to civil and criminal sanctions. The SEC may require a “cooling off” period if it believes that an impermissible communication, such as a media interview, has conditioned the market for the securities. There have also been cases where the SEC has required a company to amend its registration statement to include (and thus assume registration statement liability for) additional information from public communications that went beyond the information in the registration statement. Companies should exercise caution, especially with respect to forward-looking information, forecasts and overly optimistic predictions in their public statements.

Public company responsibilities This section outlines certain significant obligations imposed on listed U.S. domestic companies, and their officers, directors and certain of their shareholders, which do not apply to private companies. FPIs are also subject to Exchange Act reporting obligations and the rules of the U.S. exchange on which they are listed, but such requirements are less extensive compared to those for domestic companies, and with respect to certain requirements, FPIs are instead permitted to comply with their home country rules. Periodic and current reporting obligations Once a U.S. company becomes subject to the Exchange Act reporting requirements, it must file annual and quarterly reports with the SEC within certain prescribed periods after the end

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling LLP Going public in the USA of the respective fiscal period. The information required to be disclosed in these periodic reports is substantially similar to that required to be disclosed when the company’s shares are registered in an IPO. Independent auditors must audit the annual financial statements and review the quarterly financial statements. The SEC periodically reviews the company’s filed reports and may also compare their disclosure to statements made in earnings releases and other publicly available information issued by the company, including information posted on its website. In addition to periodic reports, a public U.S. company must file current reports within a few days of the occurrence of certain material events, including when it enters into or terminates a material agreement, enters into a new direct financial obligation, issues an earnings release, changes directors or officers, acquires or disposes of businesses or assets, amends its certificate of incorporation or bylaws or changes external auditors. Public companies must also file copies of their material contracts. Public companies must be constantly aware of the potential for insider trading based on material information that has not been made available to the general public. A company also must not disclose material non-public information (MNPI) to, for example, selected investors or financial analysts unless it simultaneously discloses that information to the public or the recipients of the information have expressly agreed to keep it confidential. In instances where confidentiality agreements have not been obtained prior to selective disclosure, companies customarily satisfy this disclosure obligation by issuing a press release and filing a current report to make the information public. FPIs are required to file an annual report on Form 20-F (or Form 40-F in the case of Canadian FPIs eligible to do so under the U.S.-Canadian Multijurisdictional Disclosure System) and reports on Form 6-K regarding material information otherwise released in the home jurisdiction. They are not, however, required to file quarterly reports, although they may, and often do, voluntarily provide similar types of information as U.S. domestic companies. NYSE and NASDAQ listing rules also require that FPIs file a Form 6-K containing semi- annual unaudited financial information no later than six months following the end of the company’s second fiscal quarter. Certifications of chief executive officer and chief financial officer Since SOX was passed in 2002, the annual and quarterly reports of domestic public companies, and annual reports of FPIs filed with the SEC, must include certifications by the principal executive officer and principal financial officer certifying that: (i) the information contained in the periodic report fairly presents, in all material respects, the company’s financial condition and results of operations; and (ii) the company’s internal control over financial reporting (ICFR) is effective based on management’s assessment thereof. Any officer who provides a false certification is, depending on the type of certification, subject to SEC and private actions, a monetary fine of up to $1 million and a prison term of up to 10 years (up to $5 million and 20 years for wilful violations). The company’s independent auditors must also audit and attest to the effectiveness of the company’s ICFR. The amount of time and effort necessary to support the ICFR certification and auditor attestation regime entails substantial compliance costs for public companies. Newly public companies may, however, wait until their second annual report after the IPO to file ICFR certifications and auditor attestations and EGCs in particular are exempted from the auditor attestation requirement for up to five years from going public as long as they continue to qualify as EGCs. If enacted, the JOBS 3.0 Act would extend the exemption from auditor attestation for up to 10 years for certain EGCs.

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Proxy solicitation obligations Public U.S. companies must also comply with rules regulating how proxies are solicited from shareholders in lieu of their physical attendance at shareholders’ meetings. Proxy statements must be filed with the SEC and delivered to shareholders within specified time periods before the meetings are held, provide detailed information about the meetings and matters to be voted upon and disclose certain information related to corporate governance, executive compensation and share ownership by directors, officers and significant shareholders. Public U.S. companies must also provide their shareholders the opportunity to vote, on a non-binding advisory basis, on the company’s executive officers’ compensation and whether such “say-on-pay” voting will take place every one, two or three years. Shareholder approval rates in say-on-pay votes have historically been very high since the requirement was implemented. A public company must also include a shareholder proposal in its proxy statement if it satisfies certain conditions. FPIs are not subject to the proxy rules and not required to hold say-on-pay votes. Share ownership reporting obligations Under Section 16(a) of the Securities Act, a public company’s directors, officers and shareholders beneficially owning more than 10% of any class of registered equity securities of the company (collectively referred to as “insiders”), must file publicly available reports with the SEC disclosing their holdings of, and transactions and changes in, the company’s shares. Although the forms are the responsibility of each individual filer, many are in practice filed on their behalf by the company or its counsel. In addition, under Section 16(b), every insider must pay to the company any profit deemed realized from a purchase and sale (whether the sale precedes the purchase or vice versa) of the company’s stock within any period of less than six months, with certain exemptions for such transactions made pursuant to employee benefit plans. FPIs are not subject to Section 16 reporting requirements. Corporate governance requirements Public companies are subject to various corporate governance requirements imposed under state and federal law, as well as the U.S. exchange on which the company’s shares are listed. NYSE and NASDAQ each require that a majority of the directors on a public company’s board of directors be “independent.” Under the NYSE rules, an independent director is one who does not have a material relationship with the company, either directly or as an officer, partner or shareholder of a company that has such a relationship with the company. The company must also have an audit committee comprised entirely of independent directors that are financially literate and one of whom is a financial expert, and a compensation committee and a nominating and corporate governance committee that are each comprised entirely of independent directors. Further, public companies are required to adopt a code of business conduct and ethics and, depending on which U.S. exchange they are listed on, a set of corporate governance guidelines that further delineates corporate governance responsibilities. The exchanges also require listed companies to obtain shareholder approval for certain transactions, including prior to issuing 20% or more of their outstanding common stock or voting power at a price discounted from market value, unless such issuance is made in a widely distributed public offering registered with the SEC. In April 2020, in response to the impact of the COVID-19 pandemic, the SEC approved a request from the NYSE to partially waive certain of the NYSE shareholder approval requirements until June 30, 2020, in order to grant companies more flexibility in raising equity capital in private transactions.

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NYSE and NASDAQ rules do permit a company to gradually phase in the number of independent directors on the board of directors and its committees during the first year after its IPO. Moreover, controlled companies, defined as those in which more than 50% of the voting power for the election of directors is held by a single person, entity or group, are permitted to opt out of compliance with some of the above-mentioned governance standards. FPIs are generally permitted to comply with their home country practices in lieu of the NYSE or NASDAQ corporate governance requirements, except for requirements related to audit committee composition. While the above-described rules are a mandatory baseline, some recent developments in the IPO space indicate that mere compliance with corporate governance rules may be insufficient. Board diversity, in particular, while not mandated, has been important in the 2019 IPO market. Lack of board diversity was one complaint faced by WeWork before it pulled its troubled IPO in 2019. Early in 2020, Goldman Sachs, the top underwriter of U.S. IPOs in 2019 (and a lead underwriter for WeWork’s withdrawn offering), announced that it would no longer underwrite U.S. or European IPOs of companies without at least one diverse director, with a focus on women. Once public, companies may also have to contend with the advice of proxy advisory firms, Institutional Shareholder Services and Glass Lewis and Co. chief among them. These firms publish annual proxy voting guidelines and benchmark policy recommendations and provide shareholders with tailored recommendations on how to vote their shares, potentially wielding significant influence on shareholder decision-making. Significantly departing from proxy advisory firms’ views on corporate governance best practices can lead to shareholders voting against management, including in say-on-pay advisory votes regarding executive compensation.

Potential risks, liabilities and pitfalls Diligence process and procedures One of the most important and time-consuming elements in an IPO is the due diligence process, in which the underwriters and counsel undertake a comprehensive review of the company’s legal, business, financial and accounting affairs for the past several years, as well as evaluate the company’s future prospects and identify any significant risks to the company or the offering. The overarching purpose of due diligence from the company’s and the underwriters’ perspective is to reasonably assure themselves that the registration statement, the prospectus and related marketing materials appropriately describe the company’s business, financial condition and various risks relating to the company and the offering as required by the SEC rules and do not contain any material misstatements or omissions. For the underwriters, this forms the basis of the “due diligence” defense described below. The due diligence process generally kicks off with a detailed management presentation about the business and financial condition and continues over several months until the closing of the IPO. Counsel will conduct documentary review of diligence materials, organize several question-and-answer style diligence calls with company management and the external auditors and ask the company to provide support for factual assertions made in the registration statement. In addition, the company’s external auditors will provide the underwriters a “comfort letter” containing certain assurances about the accuracy of the financial information in the registration statement. The scope and areas of focus of the diligence must be tailored to suit the particular circumstances of the company. Depending on the industry of the company, specialists, such

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling LLP Going public in the USA as intellectual property, environmental or regulatory lawyers, may be required to conduct a thorough diligence investigation. Major investment banks in the United States require extensive IPO diligence with respect to the company’s compliance with anti-corruption, anti-bribery, anti-money laundering and sanctions-related matters. It is also customary for the underwriters to order background checks on the company’s directors and senior executives for legal and reputational purposes and to conduct due diligence calls with material suppliers, vendors, key opinion leaders or business partners. Potential legal liabilities and penalties There is significant potential liability for violations of U.S. securities laws and material misstatements and omissions in the registration statement under Sections 11, 12(a) and 17 of the Securities Act and Sections 10(b) and 18 of the Exchange Act. There is no statutory definition of “materiality,” and whether a particular statement or omission is material will depend on the total mix of information available to investors and the facts and circumstances surrounding the event or transaction. Both quantitative and qualitative factors must be considered in making a materiality determination. Generally, information is deemed to be material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision regarding the company’s securities. Information about the following (among other examples) is potentially material: financial results, prospects or trends; mergers, acquisitions or other strategic transactions; risks related to the company; developments relating to the company’s major customers or suppliers; legal proceedings, government investigations or regulatory matters; changes in controlling shareholders, directors or management; and changes in the company’s indebtedness or financial position. Registration statements: Section 11 of the Securities Act Section 11 of the Securities Act establishes liability for material misstatements or omissions in a registration statement. A person who has acquired securities pursuant to a registration statement (or whose securities are traceable to the distribution that occurred pursuant to a registration statement), has a claim under Section 11 if the registration statement contained an untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading. That person may sue, among others: (i) the company; (ii) directors of the company (even if they have not signed the registration statement); (iii) persons named in the registration statement as director nominees of the company; (iv) each person who has signed the registration statement, including the principal executive officer, principal financial officer and principal accounting officer; (v) the company’s auditors with respect to the audited financial statements; and (vi) any underwriter. The company is strictly liable for any material misstatement in, or material omission from, a registration statement and no proof of fraud, intent or negligence on the part of the company is required to be shown, nor is a due diligence defense available to the company. However, persons other than the company, such as directors, officers and underwriters, can assert a “due diligence” defense. This defense is available if the defendants can show that, after reasonable investigation, they had reasonable ground to believe, and did in fact believe, that the statements in the registration statement were true and that there was no omission of material fact. The remedy under Section 11 is damages equal to the difference between the purchase price of the securities and (i) their actual value at the time the lawsuit was commenced, (ii) the price at which the plaintiff sold the securities if the sale occurred prior to commencement of the lawsuit, or (iii) the price at which the securities were sold

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling LLP Going public in the USA after the lawsuit was commenced but before judgment is rendered. The total amount of damages cannot exceed the price at which the security was offered to the public, and each underwriter’s liability is capped at the total value of the securities that that particular underwriter had underwritten in the offering. If the defendant can prove that a portion of the loss incurred by the plaintiff was due to something other than the material misstatement or omission, any damages will be reduced accordingly. Gun-jumping violations: Section 12(a)(1) of the Securities Act Section 12(a)(1) of the Securities Act creates a private right of action for violations of the registration requirements and publicity restrictions of Section 5 of the Securities Act. A person that purchases securities sold in violation of those restrictions has a rescission remedy against the seller. The plaintiff returns the security to the defendant in exchange for the purchase price (with interest calculated at an equitable rate determined by the court). In the event that the particular securities have been sold by the plaintiff, the remedy is damages. All offering communications: Section 12(a)(2) of the Securities Act Section 12(a)(2) of the Securities Act establishes liability for material misstatements or omissions in a prospectus or oral communication. Liability is subject to a due diligence defense if the defendant can show that he or she did not know, and could not in the exercise of reasonable care have known, of the misstatement or omission. Unlike Section 11, this includes liability for statements made in slide presentations or orally during the roadshow. The plaintiff under a Section 12(a)(2) claim has the same rescission remedy as under a Section 12(a)(1) claim discussed above. Section 10(b) and Rule 10b-5 under the Exchange Act Section 10(b) and Rule 10b-5 of the Exchange Act provide a broad, fraud-based remedy for material misstatements and omissions in connection with the purchase or sale of securities, whereby the defendant must be shown to have had “scienter” – acted intentionally or at least recklessly – in making the misstatement or omission. This is a private right of action claim that is commonly used in securities litigation matters and requires plaintiffs to show that the defendant made a false statement or omission of a material fact with scienter, in connection with the purchase or sale of a security, upon which the plaintiff justifiably relied and which proximately caused the plaintiff’s economic loss. Remedies include injunctive relief, estoppel, disgorgement of profits and rescission. Control person liability Under Section 15 of the Securities Act, a plaintiff can bring an action against a control person for a primary violation of Section 11 or Section 12 of the Securities Act, and such control person is jointly and severally liable with the controlled person subject to certain affirmative defenses, including lack of knowledge. Control persons typically include directors, officers and principal or controlling shareholders that have the power to direct management and the entity’s policies. Section 20 of the Exchange Act provides for control person liability for primary violations of Section 10(b) or Rule 10b-5 under the Exchange Act, and such control person is jointly and severally liable with the controlled person but can assert the defense that the “controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.” Enforcement by the SEC and Department of Justice In addition to private plaintiffs, the SEC, and in criminal cases, the Department of Justice, have broad enforcement powers for violations of the Securities Act and the Exchange Act.

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Conclusion Going public in the United States is complex and requires skilled advisors and counsel to help navigate the potential pitfalls, liability risks and nuances of the process. This chapter is an attempt to provide a broad overview of going public in the United States, the current regulatory framework and public company responsibilities, as well as potential pitfalls, liabilities and common risks. As the U.S. IPO process evolves, the SEC will continue to adopt rules to encourage capital formation, modernize disclosure regulations and improve overall disclosure effectiveness. Technology will no doubt have a strong influence and impact, as well.

Acknowledgment The authors would like to acknowledge Ekaterina Bogdanov, an associate in the Capital Markets practice of Shearman & Sterling LLP, for her assistance in preparing this chapter.

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Ilir Mujalovic Tel: +1 212 848 5313 / Email: [email protected] Ilir Mujalovic is a partner in Shearman & Sterling’s Capital Markets practice and a leader of the firm’s Global Healthcare Industry Group. He has extensive experience in capital markets transactions and advises investment banks and corporations on a wide variety of matters, including IPOs, follow- on offerings, convertible bonds, high-yield and other debt offerings. From August 2010 through February 2014, Ilir was a Director and Assistant General Counsel at Bank of America Merrill Lynch, where he advised on a broad range of equity and high-yield capital markets transactions. Prior to that, he was an associate in Shearman & Sterling’s Capital Markets Group. Ilir received his J.D. (summa cum laude) from New York Law School. He is qualified to practice in New York.

Harald Halbhuber Tel: +1 212 848 7150 / Email: [email protected] Harald Halbhuber is a partner in Shearman & Sterling’s Capital Markets practice. His practice focuses on complex corporate finance transactions, representing issuers and investment banks in debt and equity offerings, high-yield financings, debt restructurings and equity derivatives. Harald also advises clients on critical disclosure and financial reporting matters, an area in which he has authored several publications. Harald received his LL.M. from Harvard Law School and holds S.J.D. (summa cum laude) and J.D. degrees from the University of Vienna. In 2010, Harald was a Visiting Scholar at Columbia Law School. He is qualified to practice in NewYork.

Ana Aur Tel: +1 212 848 4845 / Email: [email protected] Ana Aur is an associate in Shearman & Sterling’s Capital Markets practice, where she represents issuers and investment banks in a broad range of public and private capital markets transactions. Ana’s practice includes initial public offerings, high-yield and investment grade debt issuances, acquisition financings, cross-border securities offerings and liability management transactions in a wide range of industries, including healthcare, media and telecommunications, metals and mining, general industrials, real estate, power and energy, forest products and consumer retail. Ana received her J.D. from the University of Toronto Faculty of Law. She is qualified to practice in New York.

Shearman & Sterling LLP 599 Lexington Avenue, New York, NY 10022-6069, USA Tel: +1 212 848 4000 / Fax: +1 646 848 5313 / URL: www.shearman.com

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Daniel Scotti & Nicole Sloggett MinterEllison

Introduction While there are a number of securities exchanges operating within Australia (including the National Stock Exchange of Australia, the Sydney Stock Exchange and Chi-X Australia), the Australian Securities Exchange (ASX) is typically the securities exchange of choice for entities undertaking an initial public offering IPO( ) in Australia, as it is the highest-profile securities exchange in Australia and has the largest volume of capital. ASX is a fully integrated securities exchange across multiple asset classes (e.g. equities, fixed income, derivatives and managed funds) and is a globally renowned equity market with an international reputation for conducting markets of integrity; providing investors with the confidence that is required for active securities trading. With Australia having Asia’s largest pool of investable funds and ASX consistently being ranked in the top exchanges globally for raising capital, a listing on ASX offers access to capital in one of the world’s fastest-growing regions, within a robust regulatory environment.

The IPO process: Steps, timing and parties and market practice This section contains a high-level overview of the key steps involved in taking an IPO, the typical timing required to complete an IPO, and the parties involved in the IPO process. Key steps involved in undertaking an IPO The process of undertaking an IPO will typically involve the company taking the following key steps: • Establishment of a due diligence committee: To ensure the prospectus being prepared in connection with the IPO complies with the content requirements imposed under the Australian Corporations Act 2001 (Cth) (Corporations Act) or, if the prospectus is defective, those with potential liability have the ability to make use of the legal defences contained in the Corporations Act, it is usual for companies to undertake a formal due diligence process. The process also helps to: • ensure that the prospectus is not misleading or deceptive; • identify legal impediments to the IPO which can be dealt with prior to completion of the IPO; and • enhance market comfort by establishing the reputation of the company and showing quality corporate governance. In accordance with market practice, a due diligence committee (DDC) is typically established to manage and coordinate the due diligence process for the IPO, with a view to ensuring that the above objectives are met. The DDC will usually comprise representatives from the board and management of the company, any major selling

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securityholder, the company’s lawyers and tax advisers, the investment bank/ stockbroker or underwriter of the IPO and the investigating accountant. • Undertaking legal due diligence enquiries: The company and its advisers will need to carry out commercial, legal, accounting, financial and tax due diligence enquiries on the company, its business and assets to determine material issues and identify any legal impediments to the IPO or associated transactions requiring resolution (e.g. a consent that is required to be obtained under a material contract to permit, for example, the IPO to proceed). • Pre-IPO restructure; corporate and capital structures: If recommended by legal, tax, accounting and/or commercial advice, the company may need to effect a pre-IPO restructure to implement optimal settings for its corporate and capital structure, having regard to potential liabilities, operational and marketing matters. The company will also need to review (and revise as necessary) its governance arrangements having regard to the principles of good corporate governance and recommendations set by the ASX Corporate Governance Council. • Offer structure: The company, together with its advisers, will need to determine the structure for the proposed IPO, including to whom offers will be made (institution/ broker/retail split), where offers will be made (i.e. in what jurisdictions), how offers will be made (i.e. privately marketed through a front-end bookbuild or publicly marketed with a back-end bookbuild) and by whom offers will be made (i.e. sell-down/fresh raise or a combination of the two). Decisions will also need to be made in relation to the form of underwriting (if any) for the IPO (and an agreement negotiated), the composition of lead manager and broker syndicates, and the terms of escrow (whether voluntary or ASX-imposed) which may apply to existing and continuing shareholders. • Prospectus: The company will need to prepare a prospectus which complies with the content requirements of the Corporations Act. The outputs of the due diligence process undertaken in connection with the IPO will inform the content of the prospectus. As the Australian Securities and Investments Commission (ASIC) does not review a prospectus prior to lodgement and launch of the IPO (except in very limited circumstances), the onus is on the directors of the company, underwriters and others involved with the issue of the prospectus to ensure that it complies with the requirements of the Corporations Act. Substantial penalties can apply in the event that the prospectus contains misleading information or omits material information. • Verification of the prospectus: Prior to lodgement of the prospectus with ASIC, a detailed verification process will be undertaken with respect to the prospectus. The verification process is usually coordinated by the company’s lawyers and involves each material statement, in a substantially final form of the prospectus, being referenced back to a verifying source document to ensure its accuracy. Where there are statements of opinion, forecasts or expectations on, for example, future performance, growth or development of the company’s business, the verification process will need to investigate the reasonableness of the assumptions on which these views are based. • ASX admission: To obtain admission to the official list of ASX, the company will need to apply for admission to ASX by satisfying the admission criteria in Chapters 1 and 2 of the ASX listing rules (Listing Rules) (further detail of which is set out below). If any ASX or ASIC waivers or confirmations are necessary in connection with the IPO, applications will need to be made at an earlier stage (typically six weeks before completion of the IPO). • Allocation and completion: The final stage in the IPO process is to allocate securities upon pricing of the IPO. The IPO will be completed by the company issuing securities and gaining admission to, and quotation of its securities on, ASX (after satisfying customary listing conditions).

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Fig. 1: Indicative timetable for IPOs in Australia

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Timing for completion of an IPO Assuming a company is well prepared to undertake an IPO, an IPO can generally be completed in three to four months under the indicative timetable shown on the previous page. Parties involved in the IPO process A company should engage advisers who are familiar with IPOs and the listing process. The following advisers will usually make up the IPO team: Investment bank/lead manager: The investment bank or lead manager will be the adviser who is primarily responsible for coordinating the IPO process and the company’s other advisers. Its role may include advising on the structuring of the IPO including the size of the issue, timing and pricing of the IPO, and advising on, and conducting, marketing of the IPO including coordinating and running roadshows with the company’s management. The investment bank or lead manager will also be responsible for managing the IPO to ensure that the IPO will be successful (including achieving the required security holder spread and free float for the purposes of the Listing Rules) and, if underwritten, to guarantee that the underwriter will acquire, or place, any securities not taken up by the public in the IPO. In most circumstances, the underwriter will be appointed at the commencement of the IPO process by a mandate letter which contains the material terms of appointment. The underwriting agreement will then be negotiated in the period prior to lodgement of the prospectus with ASIC, and is typically signed immediately prior to lodgement of the prospectus with ASIC. Lawyers: The role of the lawyers is to advise companies on all legal aspects of preparing for the IPO and the listing including matters such as converting to a public company, implementing any required pre-IPO reorganisation, appointing and removing directors, changing the company’s constitution and directors’ and managements’ service contracts, tax-related issues and preparing corporate governance policies. The lawyers will also coordinate the due diligence process and conduct the legal aspects of due diligence, assist with the preparation and verification of the prospectus and advise on underwriting or offer management arrangements. Investigating accountant: The role of the investigating accountant is to prepare the materiality guidelines used to decide whether due diligence findings are material, to conduct financial and accounting due diligence, to assist with the preparation ofthe financial information disclosure in the prospectus and to provide a ‘review’ level assurance report (for inclusion in the prospectus) on the company’s historical and forecast financial information (if any) for inclusion in the prospectus. Public relations consultant: The role of the public relations consultant will be to liaise with media to ensure that media coverage relating to the company and the IPO is appropriately managed, subject to the strict Corporations Act requirements relating to pre-prospectus publicity (described below in further detail). A public relations consultant may also assist in managing shareholder communications in connection with the IPO. Other advisers: The company will also need to appoint tax advisers (with this role often fulfilled by the company’s lawyers or an investigating accountant) and may require experts to report on specific matters (e.g. an independent geologist for resources companies, a patent attorney for biotech companies, etc.).

Regulatory architecture: Overview of the regulators and key regulations An IPO undertaken in Australia will principally be governed by the requirements set out in the Corporations Act (which governs the disclosures which are required to be included

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© Published and reproduced with kind permission by Global Legal Group Ltd, London MinterEllison Australia in the prospectus and is regulated by ASIC) and the Listing Rules (which prescribe the requirements which must be satisfied to obtain a listing on ASX and is regulated by ASX). Content requirements prescribed by the Corporations Act If a company intends to offer securities to the public in connection with its IPO, it will ordinarily be required to prepare a prospectus which complies with the content requirements of the Corporations Act. However, in certain circumstances where a company is not looking to raise capital at the time of seeking admission to the official list of ASX, ASX will permit a company to prepare an information memorandum, which can have marginally lower disclosure requirements and does not attract the statutory prospectus liability regime. While the Corporations Act does not prescribe all matters that should be included in a prospectus, it does require that a prospectus contain all information that investors and their professional advisers would reasonably require to make an informed assessment of the rights and liabilities attaching to the securities offered and the assets and liabilities, financial position and performance, profit and losses and prospects of the company. The prospectus must include this information if it is known to the company, its directors and proposed directors, the underwriter and advisers, or if it could be reasonably found out by those people. The fact that certain information is confidential is a relevant consideration in what is reasonable for investors and their advisers to expect to see in the prospectus. However, the overriding rule is that if information is material to investors it cannot be omitted from the prospectus on the basis that it is confidential. There is also certain prescribed information which must be included in a prospectus, such as the terms and conditions of the offer, disclosure of certain payments made to directors and advisers in connection with the IPO, information about the ASX listing, lodgement of the prospectus with ASX and ASIC and the expiry date for the prospectus. In addition to containing the prescribed content, the Corporations Act also requires that the prospectus be worded and presented in a ‘clear, concise and effective’ manner so that investors (in particular, retail investors) can understand the potential opportunities and risks associated with an investment in the company’s securities. In seeking to satisfy the disclosure requirements of the Corporations Act, regard should be had to regulatory guidance set out by ASIC, including ASIC Regulatory Guide 228 (in relation to specific disclosure issues), ASIC Regulatory Guide 170 (in relation to the disclosure of prospective financial information) and ASIC Regulatory Guide 230 (in relation to the disclosure of pro forma and non-IFRS financial information). A sample contents page for a prospectus is set out below:

Approx. no. Contents of pages Important information and Chairman’s letter Provision of statutory information, disclaimer, key dates for the IPO, IPO statistics and Chairman’s letter. 1. Investment overview – Overview of the company, its business, financial 12 information, purpose and use of funds raised, capital structure, dividend policy, risks associated with an investment in the company and the IPO. 2. Industry overview – Overview of the industry in which the company operates. 9 3. The company’s business – Description of the company’s business and 20 business model.

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Approx. no. Contents of pages 4. Financial information – The past financial performance, forecast (if any) and 20 pro forma financial information of the company (and, in certain circumstances, entities which have been acquired by it) as prepared by the directors of the company. 5. Risk factors – The main risk factors which apply to the company’s business 10 and an investment in the company’s securities. 6. Board, management and corporate governance – Overview of the directors 11 and senior management of the company, directors and managements’ interests and benefits and the company’s approach to corporate governance. 7. Details of the offer – Structure of the IPO and how to apply for securities 9 under the IPO. 8. Independent Accountant’s Report – Independent Accountant’s Report on 9 the historical and forecast (if any) financial information of the company. 9. Additional information – Summary of material contracts and additional 10 information about the company, its securities and the interests of various parties such as professional advisers. 10. Glossary – Definitions of words, terms and abbreviations used in the 3 prospectus. Corporate directory – Key contact details of those involved in the preparation of the 1 prospectus.

It is important to note that forecasts should only be included in a prospectus where there are reasonable grounds for doing so. Having reasonable grounds for a statement means that there must be a sufficiently objective foundation for the statement. In the absence of contrary evidence, a forecast which extends beyond a two-year period may not have a reasonable basis. As a result, forecasts in prospectuses are typically for periods of between six and 18 months. Requirement to lodge prospectus with ASIC The company must lodge a copy of its prospectus with ASIC, as well as lodge its application for admission to the official list of ASX, with ASX, within seven days of lodging its prospectus with ASIC. The maximum life of a prospectus is 13 months. Following lodgement with ASIC, the prospectus will be subject to an exposure period to allow any concerns about the prospectus to be raised by the market. During the exposure period, the company may receive (but must not process) applications, and the prospectus must be made generally available. The initial exposure period is seven clear days; however, ASIC may extend this period for a further seven days if it is concerned that there is a defect in the prospectus which is not resolved in the first seven days. Supplementary and replacement prospectuses If there is a significant change affecting any matter contained in the prospectus, ora significant new matter arises after lodgement of the prospectus with ASIC which renders the information provided in the prospectus false, misleading or deceptive, or a new circumstance arises which would have been required to be disclosed in the prospectus if it had been in existence at the date of the lodgement of the prospectus, this will need to be disclosed by way of a supplementary or replacement prospectus if the new information is materially adverse from the point of view of an investor. If the prospectus deficiency is materially adverse to an investor, the company must either repay application moneys or give investors a one-month period during which they can choose to be repaid their application moneys.

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ASX admission requirements In addition to the requirements set out above, there are a number of ASX requirements which will need to be satisfied for a company to be admitted to the official list of ASX. Set out below are the main admission requirements:

Admission criteria General requirements Number of Minimum 300 non-affiliated shareholders holding at least A$2,000 worth of shareholders the main class of securities that are not subject to escrow arrangements. Constitution Must have a constitution which is compliant with the ASX Listing Rules. Must: • be a going concern; • have the same business activity for last three full financial years; • have at least A$1 million aggregated profit from Profit test continuing operations for the last three full financial years; and • have more than A$500,000 consolidated profit from Company size continuing operations for the last 12 months to a (the company must date no more than two months before applying for satisfy either the ‘profit’ admission to the official list of ASX. or ‘assets’ test) Must (unless the entity is an investment entity, to which different ASX Listing Rules apply): • at the time of admission have A$4 million NTA after deducting IPO costs or A$15 million market cap; Assets test • have working capital of at least A$1.5 million; and • include a statement in the prospectus that the company has enough working capital to carry out its stated objectives as well as the objectives being sought from the listing. A company must have a 20% minimum ‘free float’ (being the percentage Minimum free float of the company’s quoted securities which are not subject to escrow (either requirement voluntary or ASX-imposed) and which are held by non-affiliated security holders) at the time of admission to the official list of ASX. • Audited accounts for the last three full financial years except where the company applies for admission to ASX less than 90 days after the end of its last financial year (unless the company has audited accounts for its latest full financial years), in which case the accounts may be for the three years to the end of the previous financial year but must also include audited or reviewed accounts for Financial reporting Profit test its most recent half-year. • Audited or reviewed accounts for the last half-year (or longer period if available) if the last full financial year ended more than six months and 75 days before making the application for admission to ASX. • Pro forma balance sheet reviewed by an auditor or independent accountant (unless ASX agrees otherwise).

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Admission criteria General requirements • Audited accounts for the last two full financial years for the company seeking admission, as well as any entity or business that it acquired in the 12 months prior to applying for admission or that it proposes to acquire in connection with its listing. Where the company applies for admission to ASX less than 90 days after the end of its last financial year (unless the company has audited accounts for its latest full financial year) the accounts may be for the two years to the end of the previous financial year but must also include audited or reviewed accounts for its most recent half-year. • Audited or reviewed accounts for the last half-year (or longer period if available) if the last full financial year ended more than six months and 75 days before making the application for admission to ASX. This also applies to any entity or business Financial reporting Assets test that the company acquired in the 12 months prior to applying for admission or that it proposes to acquire in connection with its listing. • Pro forma balance sheet reviewed by an auditor or independent accountant (unless ASX agrees otherwise). In each case above, the audit report or review must not contain a modified opinion, emphasis of matter or other matter paragraph that ASX considers unacceptable. Under the assets test, less than half of the company’s total tangible assets (including any IPO proceeds) must be cash or readily convertible to cash. If the company is not able to meet this test, it will be treated as a ‘cash box’, and must have commitments consistent with its stated business objectives to spend at least half of its cash and assets in a form readily convertible to cash. These objectives, together with an expenditure programme, must be set out in the prospectus. The directors, CEO, CFO and any proposed directors, CEOs or CFOs of the company must obtain a national criminal history check and bankruptcy Good fame and check for each country in which they have resided for the last 10 years as character of directors well as provide a statutory declaration affirming that, among other matters, they have not been the subject of disciplinary or enforcement actions by an exchange or regulator. Registration as a A foreign entity seeking admission to the official list of ASX must be foreign company registered as a foreign company under the Corporations Act. The company will be required to either: • prepare a prospectus which complies with the requirements of the Corporations Act; or • with ASX’s consent and provided that no capital has been raised in Disclosure document the past three months and the company does not expect it will need to raise capital in the next three months, and has the required spread of security holders, prepare an information memorandum which has prospectus-type disclosure. The company must disclose the extent to which it will follow the Recommendations. If the company will be included in the S&P/ASX 300, Corporate governance it must have audit and remuneration committees, with the audit committee complying with the Recommendations and the remuneration committee comprising solely of non-executive directors.

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Publicity restrictions The following provides a high-level overview of the regulatory regime which applies in respect of the marketing of an IPO in Australia: Pre-prospectus publicity: The Corporations Act imposes strict restrictions on advertising an IPO before a prospectus is lodged with ASIC. Subject to certain limited exceptions, a company will be prohibited from advertising an IPO (including ‘image advertising’ which may induce applicants for securities) before a prospectus is lodged with ASIC. This prohibition is intended to stop the public applying for securities without first reading the prospectus. Ordinary course advertising: The image advertising restrictions in the Corporations Act will not prohibit the company from continuing its normal business advertising, provided that such advertising relates only to the company’s business (and not the IPO). Roadshows: An IPO is generally marketed privately for a period of between one and two weeks before the prospectus is lodged with ASIC to ensure there is sufficient demand for the IPO. This process is called the roadshow. The underwriter/lead manager will need a near-final prospectus prior to undertaking a roadshow and will usually sign the underwriting agreement/offer management agreement and agree to lodgement of the prospectus with ASIC following a successful roadshow. A roadshow to Australian financial services licence holders is an exemption to the prospectus publicity restriction. Post-prospectus publicity: There is more flexibility in terms of advertising an IPO once a prospectus has been lodged with ASIC. However, the advertising must not be false, misleading or deceptive (including by omission) and should be consistent with the disclosures made in the prospectus. The advertisement must also include a statement that the securities are offered under the prospectus and that applicants must read the prospectus before applying for securities and must complete the application form in, or accompanying, the prospectus in order to apply for securities in the company.

Public company responsibilities Once trading of the company’s securities commences on ASX, and in the absence of any specific waivers being received from ASX, the company will need to comply with the detailed continuing obligations in the ASX Listing Rules. Key obligations are described below:

The company must notify ASX immediately of any information concerning it that a reasonable person would expect to have a material effect on the price or value of its securities. Exceptions to this rule include information relating to confidential negotiations on an incomplete proposal, and information produced for internal management purposes (such as financial projections). In addition, there are specific disclosure requirements for matters such Continuous as changes to directors’ interests, security issues, notifications of annual disclosure general meeting dates, changes of officers and auditors, dividends, release of securities from escrow, lodgement of a disclosure document with ASIC, the exercise by an underwriter of a right to terminate an underwriting agreement or avoid or change the underwriter’s obligations under such agreement, prepared addresses delivered at a general meeting and results of voting at meetings, etc. ASX requires listed companies to publish prescribed financial reports on an annual, half-yearly and, in some cases, quarterly basis, generally within Financial reporting 60 days of the relevant reporting period (this is a much shorter period than applies under the Corporations Act).

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Re-election of Each director of a listed company (other than a managing director) must directors stand for re-election every three years. Listed companies are generally limited to issuing new securities equal to no more than 15% of their issued capital (or 25% for SMEs, who are able to Limitations on issue an additional 10% of their issued capital for cash consideration only) securities issues over a rolling 12-month period, unless shareholder approval is obtained or one of a number of specified exceptions applies. The ASX Listing Rules prescribe shareholder approval requirements for Transactions with certain transactions between a company and its directors and other related related parties parties. The ASX Listing Rules prescribe shareholder approval requirements for Transactions with certain transactions between a company and 10+% and 30+% substantial substantial holders holders and their associates. Significant Shareholder approval requirements are prescribed for certain major transactions acquisitions and disposals. ASX publishes best practice recommendations for the corporate governance of listed companies. There are only a small number of binding corporate governance requirements, while the majority of these guidelines are not Corporate governance mandatory. Instead, ASX applies an ‘if not, why not’ approach, requiring companies to explain in their annual report why they have not complied with any of the best practice recommendations. The insider trading provisions of the Corporations Act prohibit a person from dealing in the company’s securities if they are in possession of materially price-sensitive information which has not been made generally available to the market. Accordingly, the company will need to put in place procedures Insider trading to limit the distribution of such information, as well as set out the times during which staff, management and directors can trade in the company’s securities. The allowed trading windows are usually after the release of half- year and full-year results, and after the annual general meeting.

Generally, unless a foreign company has a foreign exempt listing, overseas companies are required to comply with the same continuing obligations as Australian companies. However, in certain circumstances, ASX will impose additional disclosure requirements, or may waive certain ASX Listing Rules, for foreign companies. For example: • As the Australian takeover and substantial shareholder provisions do not apply to companies incorporated outside Australia, ASX requires a statement of that fact to be included in each annual report, and requires an undertaking from the company to immediately inform the market on becoming aware of any person becoming or ceasing to be a ‘substantial shareholder’ (as defined in the Corporations Act), or a movement of at least 1% in the number of securities in which a ‘substantial shareholder’ has an interest. • ASX may permit foreign companies to report in the currency of their home jurisdiction and under the recognised accounting policies of that jurisdiction and will, in certain circumstances, waive its financial reporting requirements where it considers that the equivalent requirements of the company’s primary exchange are sufficiently stringent to keep the market informed.

Potential risks, liabilities and pitfalls The following provides an overview of when a prospectus is likely to be considered to be ‘defective’ (and therefore give rise to potential civil and criminal liability), who is exposed to liability for the defect, and to what extent defences to liability are available.

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Liability for a prospectus A person may be subject to civil and criminal liability under the Corporations Act in relation to an IPO if: • the prospectus contains a false, misleading or deceptive statement or omits information which is required to be included under the Corporations Act; or • after the prospectus was lodged, a new circumstance has arisen which would have been required to be disclosed in the prospectus if it had arisen before the prospectus was lodged with ASIC, and an amended supplementary or replacement prospectus has not been issued. The company, its directors or a person responsible for statements in a prospectus may also be liable at common law for a fraudulent or negligent misrepresentation in a prospectus. In addition to the specific liability set out above, liability may also arise for other actions taken or statements made in connection with an IPO. For example, a person could potentially contravene the Corporations Act by making a false, misleading or deceptive statement during marketing activities undertaken as part of the IPO or by breaching the pre-prospectus advertising restrictions. Accordingly, directors and management should be very careful about any statements they make about the company or the IPO during the IPO process. Who may be liable? A number of parties involved in the preparation of the prospectus may be subject to criminal and civil liability including (amongst others) the offeror of securities (being the company and/ or any selling shareholder), directors and proposed directors of the company, underwriters and persons who are involved in the contravention of the Corporations Act. The extent of the potential liability will differ depending on the person involved. In particular, in the event that the prospectus is defective, the company, any selling shareholder, their respective directors and any underwriter will bear responsibility for the entire prospectus and will potentially be liable for any loss or damage suffered. Defences to liability There are a number of defences available to potential civil and criminal liability, some of which include that an appropriate due diligence process was undertaken (which requires reasonable enquiries and a reasonable belief that the relevant statement was not defective), reasonable reliance on others’ defence (which requires reasonable reliance on a third party such as an adviser), withdrawal of consent (which requires the public withdrawal of consent to be named in the prospectus), and non-awareness of a new matter (which applies where the new matter has arisen since the prospectus was lodged).

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Daniel Scotti Tel: +61 2 9921 4360 / Email: [email protected] Daniel specialises in capital markets and mergers and acquisitions. Daniel has advised on many IPOs (including dual track process and dual listings), placements, rights issues and entitlement offers, other secondary offers, secondary sales and convertible and corporate bond offers. His clients include the full spectrum of company and managed investment scheme issuers, private equity sponsors, institutional investors and lead managers and underwriters. Daniel’s merger and acquisition experience covers private treaty trade sales, sales and acquisitions by private equity sponsors, as well as public transactions, such as schemes of arrangement and regulated takeover bids. He also advises clients on Corporations Act and ASX Listing Rule compliance, reporting and disclosure obligations.

Nicole Sloggett Tel: +61 2 9921 4855 / Email: [email protected] Nicole has experience in advising international and Australian clients on a broad range of corporate matters, including initial public offerings and capital raisings, internal reorganisations and restructures, schemes of arrangement as well as providing advice to companies on their obligations under the Corporations Act 2001 (Cth) and the ASX Listing Rules.

MinterEllison Level 40, Governor Macquarie Tower, 1 Farrer Place, Sydney, NSW 2000, Australia Tel: +61 2 9921 8888 / Fax: +61 2 9921 8123 / URL: www.minterellison.com

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Daniela Anversa Veirano Advogados

The IPO process The first formal procedure for a company to go public in Brazil is its application, asa publicly traded company, with the Comissão de Valores Mobiliários (“CVM”), or the Brazilian Securities and Exchange Commission. The CVM is a federal autarchy responsible for regulating and supervising the Brazilian capital market. Among other functions, the CVM: (a) protects securities holders against fraudulent issues and illegal actions carried out by publicly traded company management members, controlling shareholders and fund managers; (b) supervises fraud or market manipulation which may give rise to artificial pricing formation in the securities market; (c) regulates disclosure requirements by market participants; and (d) ensures that all market participants adopt fair trading practices. The legal framework rule that regulates the registration of an entity as a publicly traded company is CVM Ruling 480 dated December 7, 2009 (“ICVM 480”). The main documents required to be presented when dealing with an application are: • a request letter signed by the Investor Relations Officer; • minutes of the meeting of the Board of Directors or the minutes of the General Shareholders’ meeting in which the Investor Relations Officer was elected; • an updated copy of the bylaws; • financial statements and explanatory notes for the three most recent fiscal years, prepared as set forth in article 176 of Law 6.404 (Brazilian Corporation Law) dated December 15, 1976, indicating the newspapers and dates of their publication; • financial statements for the last fiscal year prepared as per ICVM 480 (which should include explanatory notes, a management report, the independent auditor’s opinion, declarations and confirmations of the directors attesting that they have reviewed the financial statements and a report from the audit committee, in case the company has set up a committee of such kind); • minutes of all shareholders’ meetings which occurred in the last 12-month period preceding the date of application of registration with the CVM; • standardised financial statements (Demonstrações Financeiras Padronizadas – “DFP”) for the last fiscal year; • a quarterly information report (Informações Trimestrais – “ITR”) containing information on the three-month period of the current fiscal year, provided that not more than 45 days have elapsed since the closure of each quarter. Such information should be accompanied by a special revision report issued by an independent auditor registered with the CVM; • copies of shareholders agreements of which the company is subject to; • the securities trading policy;

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• the disclosure policy; • information on the company’s securities held by its management members; • a disclosure report, or reference form (Formulário de Referência), prepared as per Annex 24 of ICVM 480; and • a registration form (Fomulário Cadastral), as per the terms of ICVM 480. The Formulário de Referência, mentioned above, is a detailed document that aims to provide information on the company. It is similar to a shelf document and requires a vast number of disclosure requirements. It is the investors’ main source of information on the company and has a standardised format and favours the rendering of information on a continuous basis. It is a dynamic document updated annually, whenever there is a public offering of securities or within seven days as of the occurrence of specific events. The Chief Executive Officer and the Investor Relations Officer must declare that they have read and revised the Formulário de Referência and that the information contained in it is in compliance with ICVM 480 and portrays the company in a true, precise and complete manner. Once filed, the CVM has 20 business days to analyse the request and issue a comment letter. The company has up to 40 business days to comply with the CVM’s comments. Once the documentation has been re-filed, the CVM has an additional 10 business days to issue a second comment letter. Another 10 business days can be used by the CVM to issue a third and final comment letter. Application for registration as a publicly traded company is carried out in electronic format and the company must register itself with the CVM and the B3 S.A. – Brasil, Bolsa, Balcão (“B3”)’s electronic systems in order to file the documents listed above. The whole process takes approximately three to four months to be carried out, assuming the CVM does not issue heavy comments. Once the entity has been registered as a publicly traded company, it can proceed with the application for registration of the offering of its shares (the IPOper se) and its listing at the B3. However, it is very common that companies proceed with the registration of the entity as a publicly traded company and the offering simultaneously. Therefore, two applications must be carried out at the CVM: the procedure mentioned above (application as a publicly traded company); and the procedure to register the offering. Different departments of the CVM will analyse the documentation and the procedures will run in parallel. The offering registration application requires the filing of the main following documents: (a) a public offering prospectus (in which the information in the Formulário de Referência is incorporated by reference); (b) an underwriting agreement; (c) announcements of the initiation and closure of the offering; (d) sale of shares or subscription agreement; and (e) confirmation statements of the lead underwriter and the company attesting that the information disclosed to the market is correct, precise and complete. These documents are presented in draft form and will be commented on by the CVM. Like the procedure for registration of the company as publicly traded, the CVM has 20 business days to issue its comment letter. The company and the lead underwriter have up to 40 business days to comply with the CVM’s comments. Once the documentation has been re-filed, the CVM has an additional 10 business days to issue a second comment letter. Another 10 business days can be used by the CVM to issue a third and final comment letter. Roadshow material and any other supporting documents that are aimed to be presented to investors must be filed at the CVM and must not contain information that has not been included in the company’s Formulário de Referência and offering prospectus. More recently, in February 2019, through CVM Deliberation 809, the CVM on an experimental basis afforded companies to request confidential treatment when applying for an offering

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Veirano Advogados Brazil registration request. With this confidential request, companies will not need to disclose to the market the fact that they have filed for an IPO until the launch of the offering. In an IPO, it is not only the CVM that must be involved in terms of regulators. The company must also register itself, its shares and the offering per se at the B3, the most important Brazilian stock exchange. The Brazilian Financial and Capital Markets Association (“ANBIMA”) as a self-regulatory entity will also need to be involved and will register the offering after its completion, in case the lead underwriter of the transaction is an investment bank and an affiliate of ANBIMA. ANBIMA is an entity that acts as a representative of players operating in the Brazilian financial and capital markets. Simultaneously with the application for registration as a publicly traded company with the CVM, a filing of the companyper se, its shares and the offering at the B3 must occur. In the listing procedure for trading shares at the B3, the company must define which of the special segments of corporate governance it will adhere to: Bovespa Mais, Bovespa Mais Nível 2, Novo Mercado, Nível 2 or Nível 1. The differences between these segments relate to corporate governance, and the rules governing each segment go beyond the obligations that companies have according to the Brazilian Corporation Law and are intended to improve the assessment of companies who decide to join one of these segments voluntarily. The rules also attract investors since they ensure shareholders rights and guarantees, as well as establishing the dissemination of more complete information for market players, aiming to mitigate risks related to informational asymmetries. The B3 also has the Basic Segment that does not contain corporate governance rules. Below is a comparative chart of the listing requirements of the above-mentioned segments:

Continued Overleaf

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Veirano Advogados Brazil Basic regulation regulation regulation regulation orations Law) Common and per legislation) to Brazilian Corp- Minimum of three members (pursuant There is no specific There is no specific There is no specific There is no specific preferred shares (as 25% Share efforts Nível 1 There is preferred (pursuant regulation Law), with dispersion no specific legislation) accession) to Brazilian Minimum of Chairman of the Board of Corporations Officer by the Directors and Common and unified term of shares (as per Officer or Main three members up to two years grace period of Chief Executive same person (a three years from 25% efforts rights) Nível 2 clauses” accession) to two years Chairman of the Board of members, of 20% must be Officer by the which at least Directors and Common and Officer or Main (with additional grace period of Minimum of five and “immutable Chief Executive same person (a Voting limitation Voting three years from preferred shares qualified quorum independent with Share dispersion unified term of up the voting capital, of less than 5% 1 clauses” Novo Mercado Only common shares (from January 2, 2018) unified term of up to two years to the regularisation are obligatory pursuant to CVM’s Instruction 476 pursuant to CVM’s Volume (“ADTV”) is above R$ 25 million Volume capital, qualified quorum and “immutable person. In case of vacancy that results in Comparative listing of segments 25% or 15%, if the Average Daily Trading Trading Daily Average 25% or 15%, if the Share dispersion efforts, except for offerings Chairman of the Board Directors and Chief Voting limitation of less than 5% the voting Voting Executive Officer or Main by the same Corporation Law), of which at least two or 20% information and the compliance with a deadline (whichever is greater) must be independent with cumulation of positions, the disclosure certain Minimum of three members (pursuant to Brazilianto (pursuant members three of Minimum years shares of listing regulation regulation There is no specific There is no specific “immutable clauses” Qualified quorum and (according to law), with Common and preferred unified term of up to two Bovespa Mais Nível 2 25% until the seventh year Minimum of three members Mais listing shares There is There is clauses” Qualified regulation regulation Bovespa (according no specific no specific “immutable Minimum of to law), with quorum and 25% until the Only common unified term of three members up to two years seventh year of float) positions Minimum of shares provisions Prohibition to statutory of Directors outstanding shares (free of the Board Composition Share capital Prohibition of cumulation of percentage of Public offering

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Veirano Advogados Brazil force Basic Optional Optional regulation regulation There is no specific There is no specific As per legislation in force As per person) Nível 1 There is There is regulation regulation no specific Mandatory no specific legislation in Mandatory (in English person) Nível 2 There is financial regulation Mandatory no specific offer for the besides the item above) acquisition of Statement on Mandatory (in requirements) shares issued (with minimum Translated into Translated by the company statements (see any public tender 1 Mandatory Novo Mercado As per legislation in force (from January 2, 2018) the tender offer available on market) the market) and results press releases Statement on any public tender offer for the Comparative listing of segments Public meeting (in person or by any other Material information or benefit distribution be held within five business days after the statements about the information disclosed means that allow remote participation) must minimum requirements, including alternatives to information (notice to shareholders or notice disclosure of the quarterly and annual financial acquisition of shares issued by the company (with Optional regulation regulation Mandatory There is no specific There is no specific Bovespa Mais Nível 2 As per legislation in force force Mais As per There is There is Optional regulation regulation Bovespa no specific Mandatory no specific legislation in duties events simult- meeting Board of Financial Directors’ Directors’ corporate in English Disclosure statements Calendar of Annual public aneously with the disclosure in Portuguese

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Veirano Advogados Brazil Basic regulation legislation) There is no Not applicable shares (as per 80% for common Nível 1 80% for common Securities of conduct legislation) negotiation Not applicable shares (as per policy and code Nível 2 100% for Securities of conduct negotiation Compulsory offer in case cancelling or segment exit public tender common and of registration policy and code preferred shares 1 Policy. there is one). Novo Mercado (from January 2, 2018) 100% for common shares of the free float shareholders The following policies with minimum (or higher, as established in the bylaws) (or higher, requirements (except the Compensation Policy of the Board Directors, advisory Comparative listing of segments ⅓ report by the non-statutory audit committee Transaction Policy; and (v) Securities Trading Trading Policy; and (v) Securities Transaction in the Regulation; and (ii) quarterly minutes of Disclosure of: (i) annual report of the statutory fair price, with minimum acceptance quorum advisory committees and the Fiscal Council (if audit committee covering the points contained of the Board of Director’s meetings, informing the (iii) Risk Management Policy; (iv) Related Party Code of Conduct (with minimum requirements). Policy): (i) Compensation Policy; (ii) Nomination Internal regulations of the Board Directors, its Compulsory public tender offer, at least for the Compulsory public tender offer, committees and Executive Management Board; preferred shares Mercado or Nível 2 offer, at least for the offer, 100% for common and Bovespa Mais Nível 2 Securities trading policy economic value, in case of registration cancelling or segment exit, except if Compulsory public tender there is migration to Novo Mais shares offer, at offer, common 100% for Bovespa economic Securities least for the Compulsory cancelling or public tender trading policy segment exit, of registration value, in case is migration to except if there Novo Mercado offer rights Tag-along Tag-along Disclosure information of additional public tender the segment/ Delisting from

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Veirano Advogados Brazil Basic Optional Optional Optional Optional Nível 1 Optional Optional Optional Optional Nível 2 Optional Optional Optional Mandatory 1 permitted Mandatory Regulation Novo Mercado (from January 2, 2018) department. The accumulation of department. department in compliance with the Mandatory setting up of an auditing internal controls and corporate risks with the requirements set forth in Mandatory setting up of a compliance, Comparative listing of segments requirements set forth in the Regulation or statutory audit committee in compliance Mandatory setting up of an audit committee compliance and operational functions are not Optional Optional Optional Mandatory Bovespa Mais Nível 2 Mais Optional Optional Optional Bovespa Mandatory Audit Internal auditing Chamber Arbitration committee the Market member of Becoming a Compliance

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Once the company reaches a preliminary understanding with the underwriting syndicate, the IPO process starts in full force, and the marketing of the offering begins. This is the period during which the company is subject to CVM guidelines regarding the publication of information not contained in the offering prospectus. The so-called “quiet period” required by articles 48 and 49 of CVM Ruling 400 dated December 29, 2003 (“ICVM 400”) kicks in. Under ICVM 400, the issuer and the intermediary institutions involved in the public offering (the latter since the contracting thereof, of which may have been decided or projected) and the persons working with or in any other way advising such parties shall, until the public offering is disclosed to the market, limit: (a) the disclosure of information related to the offering and the company strictly as necessary for the purposes of the offering, thereby warning the addressees of the privileged nature of any delivered information; and (b) the use of the confidential information exclusively for the purposes of preparing the offering. Such parties shall also: (a) refrain from trading any securities issued by the issuer, or referenced thereby until the disclosure of the notice of termination of the offering, except in certain events listed in ICVM 400; (b) deliver to the CVM public research and reports on the company and the transaction that have been prepared; (c) refrain from making public statements to the media regarding the offering or the company up to the disclosure of the notice of termination of offering; and (d) comply with the principles of quality, transparency and equal access to information when disclosing information related to the issuer or the offering once the offering becomes public. The intermediary institutions are also required to clarify to the market, the relations they have with the company or its interest in the offering. The registration of a public offering takes approximately three months, on average, from the application of the request until the granting of the registration statement. This period could be shorter or longer, depending on the complexity of the transaction, the number of investors and the number of transactions currently being analysed. The time required tends to be shorter as a result of agreements between the CVM and self-regulators, such as ANBIMA. In general, the launch of the IPO and the roadshow begins after compliance with the first round of comments from the CVM. After this and until the bookbuilding date, the underwriters will contact and present the offering to the public investors, as described in the prospectus. Once the registration is issued by the CVM, the publication of the notice of initiation of the offering takes place and the bookbuilding process is terminated. The final offering prospectus is prepared, placed on the websites of the company, the underwriters, the CVM and the B3, and disclosed to investors. Settlement of the shares occurs and the closure notice of the offering is published. As mentioned above, filing of the offering at ANBIMA is also carried out. After going public Brazilian Corporation Law and securities regulations of the CVM require that publicly held companies file the following periodic information with the CVM and the B3: • financial statements prepared in accordance with Brazilian GAAP and related management and auditors’ reports, within three months from the end of the fiscal year or on the date on which they are published or made available to shareholders, whichever occurs first, together with the DFP; • notices, filed on the same date as their publication, of the company’s annual shareholders’ meeting; • a summary of the decisions made at annual shareholders’ meetings, filed on the day following the meeting; • a copy of the minutes of the annual shareholders’ meeting, filed within 10 days from the date the meeting is held;

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• quarterly reports on a standard form containing relevant quarterly corporate, business and financial information, together with a special review report issued by the independent auditor, filed within 45 days from the end of each quarter; • the Formulário de Referência, filed within five months from the end of each corporate year and in case of the occurrence of certain events listed in ICVM 480; • the Formulário Cadastral, which must be updated within seven business days if any of the information contained therein is modified; • the management report within one month before a shareholders’ meeting is scheduled to occur, giving notice that certain management documents, as required by Brazilian Corporation Law, are available to shareholders; • a corporate governance report (Informe sobre o Código Brasileiro de Governança Corporativa) containing information on the company’s corporate governance practice in a “comply or explain” format, within seven months after the end of the fiscal year; and • any documents deemed necessary for shareholders to exercise their voting rights. In addition to the foregoing, a publicly traded company must also file the following information with the CVM and the B3: • notices, filed on the same date of their publication, of extraordinary or special shareholders’ meetings; • a summary of the decisions made at extraordinary or special shareholders’ meetings, filed on the day following the meeting; • minutes of extraordinary or special shareholders’ meetings, filed within 10 days from the date they are held; • a copy of any shareholders’ agreement, filed on the date on which it is registered at the company’s headquarters; • any press release giving notice of material facts, filed on the date the release is published to the market; • information on any filing for corporate reorganisation, the reason for such filing, special financial statements prepared for obtaining a legal benefit, and, if applicable, any plan for payment of holders of debentures, as well as copies of any judicial decision granting such request; • information on any bankruptcy filing, on the same day the company becomes aware of it, or the filing of a judicial claim, as applicable; • a copy of any judicial decision granting a bankruptcy request and appointing a bankruptcy trustee, filed on the date the company takes notice of it; and • any other information as requested by the CVM. Publicly traded companies must also disclose to the public any material facts or acts. Material facts or acts are defined by the CVM as a fact or an act of a political, administrative, technical, business or financial nature related to the relevant company that may significantly affect: (a) the trading price of the securities issued by the company or related thereto; (b) the decision of investors to purchase, sell or hold these securities; or (c) the decision of investors to exercise any rights related to the ownership of securities issued by the company or related thereto. The Investor Relations Officer has the duty to immediately disclose any material fact to the CVM and the market. If the controlling shareholder(s), members of management or any administrative committee with technical or advisory functions have personal knowledge of notice or material fact and omit to the Investor Relations Officer such information, impeding him/her to carry out his/her duty of disclosure, such shareholder(s), officers, directors and professionals will only be exempt from liability towards the CVM and the market if they immediately communicate such fact/information to the CVM. The CVM may determine the disclosure of the information as well as require its correction or amendment.

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Also, disclosure of trading of securities by controlling shareholders, management members or members of the Fiscal Council must be sent to the CVM and the B3 and disclosed to the market on the first business day after their appointment or within five days of the trading. Additionally, the company, acting through its Investor Relations Officer, must send the above-mentioned information to the CVM and, as appropriate, to the B3 or organised over- the-counter (“OTC”) market entities where the company’s shares are traded, within 10 days after the end of the month when changes in the positions held occurred or the month when the above-mentioned people were elected (name and position) of those acquiring the shares. Disclosure on the purpose for the acquisition and purchase amount including, if necessary, a statement from the person acquiring the shares that the purpose of the acquisition is not to alter the administrative structure or the control structure. The number of shares, subscription bonuses, and rights to subscribe shares and share purchase options must be disclosed to the market. Such communication is also compulsory for the person or group of people representing the same interest, holding 5% of shares or more of the publicly traded company or whenever such ownership increases or decreases by 5%.

* * *

Endnote 1. Extracted from B3’s website.

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Daniela Anversa Tel: +55 11 2313 5805 / Email: [email protected] Daniela Anversa is a partner focusing on capital markets and finance at Veirano Advogados. Her expertise encompasses both private placement and public offering of shares, debt and equity securities in Brazil and abroad. With extensive experience advising organisations obtaining status as publicly listed companies, she has participated in the initial public offerings and follow- ons of companies such as JBS, Localiza Rent a Car, Minerva, Gol Linhas Aéreas Inteligentes, Marfrig Global Foods, TOTVS, TAM (LATAM Airlines), Diagnósticos da América, Ecorodovias Concessões e Serviços and Multiplus. Legal directory Chambers Latin America recognised Daniela as one of Brazil’s leading capital market lawyers, highlighting her as a “super lawyer – extremely helpful and always practical” who has “a great command of US and Brazilian law”.

Veirano Advogados Av. Brigadeiro Faria Lima, 3477, 16th floor – Itaim Bibi, 04538-133, São Paulo, SP, Brazil Av. Presidente Wilson, 231, 25th floor – Centro, 20030-021, Rio de Janeiro, RJ, Brazil Tel: +55 11 2313 5700 / +55 21 3824 4747 / URL: www.veirano.com

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Shiwei Zhang Zhong Lun Law Firm

Introduction Since the Shanghai Stock Exchange (“SSE”) was inaugurated in 1990, China’s securities market has been growing for over 29 years. In 2019, 247 companies passed A-share IPO review,1 accounting for an overall approval rate of 89.49%; the Public Offering Review Committee (“Review Committee”) under the China Securities Regulatory Commission (“CSRC”) reviewed 161 IPO applications, greenlighting 138 and rejecting 16, with seven either suspended or struck from the review list, which represents an approval rate of 85.71%;2 and the Stock Listing Committee (“Listing Committee”) of the Science and Technology Innovation Board (“STAR”) of the SSE deliberated on a total of 115 IPO applications and gave 109 of them the go-ahead, indicating an approval rate of 94.78%, and 80% of which have completed their IPO registration with the CSRC. Compared with the data from 2018, 2019 saw 136 more cases of A-share IPO approval, a 29.49% increase in the approval rate.

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Today, the SSE Main Board and the Shenzhen Stock Exchange (“SZSE”) still run an approval system for IPO applications. Whether an IPO can pass the CSRC’s review is hinged upon certain factors, such as its going concern ability/profitability, compliant operation, and actual business performance. In comparison, the STAR runs a registration system, which poses a higher standard on information disclosure in IPO applications than other A-share boards do. Inappropriate disclosure of information may thwart the IPO attempts of an applicant seeking to go public on the STAR. As seen in a handful of IPO applications rejected by the Listing Committee, the main reason causing such failure is “insufficient, inaccurate or inconsistent disclosure of information relating to business model, core technology, or financial information of the prospective issuer”. Among the industries engaged in by IPO applicants that have been given the stamp of approval from the CSRC, the top three spots were taken by: computer, telecommunications and other electronic device manufacturing; chemical raw material and chemical product manufacturing; and electrical machinery and equipment manufacturing, with 22, 11 and 10 companies garnering the CSRC’s approval, respectively. It is also notable that the nine financial companies in the IPO pipeline have been given the all-clear by the CSRC. Successful STAR IPO applicants cluster in industries such as high-end manufacturing, information technology, biomedicine, semiconductor, and new material, echoing the board’s intention to support the “high-tech industry and strategic emerging industry”. In 2019, 201 new stocks hit China’s A-share market, almost doubling the 105 fellow stocks in 2018. Among these newcomers of 2019, 78 were on the SZSE, and 123 on the SSE, attracting an influx of funds amounting to RMB 253.248 billion in total, an 83.78% rise compared with the previous year. This evidences a remarkable expansion of the overall financing scale in China’s securities market. It can be observed that the approval rate of A-share IPO applications, the number of applicants, and the total financing amount in China all witnessed considerable growth in 2019, largely by virtue of the inauguration of the STAR and the implementation of the registration system. As a new board that pilots the registration system, the STAR has seen 70 entrants in a period of just six months since the first batch of companies made their debut on the board on July 22, 2019. The amount raised by these 70 companies totals RMB 82.4 billion, taking up 33% of the funds raised through A-share IPO. “Registration system” was a catchphrase for China’s A-share IPOs in 2019. This popularity was fuelled by some key events. First, after China’s president Xi Jinping announced on November 5, 2018 that the STAR was to be launched on the SSE as a pilot board for the registration system, the SSE and other institutions promptly embarked on preparations for the board in terms of formulation of laws and policies, infrastructure, technology, etc. with great efficiency, which has secured a successful launch of the board in the second half of 2019. Second, the Central Economic Work Conference was held in December 2019, which aimed to expedite the restructuring of China’s financial system, develop the fundamental legislation for the capital market, secure a high quality of listed companies, improve the exit mechanism, and steadily propel the reform of the ChiNext and the National Equities Exchange and Quotations (“NEEQ”). Also, in the same month, Shenzhen’s municipal government expressed their determination to put in place the registration system in the ChiNext as soon as possible and prepare for an overall implementation of the system in the city. Third, on December 28, 2019, the Standing Committee of the National People’s Congress adopted a revised version of the Securities Law of the People’s Republic of China (“New Securities Law”), which systematically modifies and improves the securities offering mechanism on the basis of experience gleaned from the STAR and its piloting of

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Zhong Lun Law Firm China the registration system, aiming at rolling out the system to all A-share IPOs in China. Given that this goal cannot be attained overnight, the New Securities Law authorises the State Council to define the application scope and implementation steps of the registration system. What can be expected, however, is that the registration system will replace the current approval system and play a role in the entire A-share IPO market in China.

The IPO process: Steps, timing and parties and market practice Currently, the approval and registration systems coexist in IPO application review in China, with the SSE Main Board and the SZSE employing the former, and the STAR the latter. As before, an IPO and listing under the approval system ought to undergo four steps, namely: (i) restructuring; (ii) tutorship; (iii) application and review; and (iv) issuance and listing of shares and continued monitoring. On paper, it normally takes about one year for a company to complete the whole process from restructuring to listing, whereas in reality, this process tends to take about a year and a half to two years. Although generally a STAR IPO under the registration system must also go through the same four-step process, it is streamlined and expedited. For example, the tutorship period can be shortened, and the application and review procedure is also simplified: an issuer prepares its IPO application documents, and its sponsor assists in the IPO and submits the application to the SSE; the SSE conducts a pro forma review of the application documents and decides whether to accept the application within five business days upon the submission, and the SSE may also require the issuer to correct the submitted documents or provide additional documents within 30 business days; the SSE conducts the first round of inquiry within 20 business days after accepting the application, and may pose any further rounds of inquiry within 10 business days after the issuer, the sponsor and/or other advisors/service providers respond to the first round of inquiry; if the listing review body of the SSE finds any further inquiry unnecessary, it will prepare a review report and submit it to the Listing Committee; the Committee gives its consent to the application or ceases its review of the same and, in the former case, submits its review opinion to the CSRC; the CSRC decides whether to approve or reject the issuer’s application for registration within 20 business days upon receipt of the review opinion; and finally, the CSRC’s decision on approval of the application for registration is valid for one year from the date when the decision is made, and the issuer shall issue its shares within the one-year period at any time it sees fit. The STAR boasts both a more expedited application process and a more efficient review process than any other A-share board does. In theory, it takes six months to finish the review of a STAR IPO application, including no more than three months for the SSE’s review and no more than three months for the issuer and its sponsor and/or other advisors/service providers to respond to the SSE’s inquiry. The time of any suspension of review, seeking of opinions of competent authorities, implementation of any opinions of the Listing Committee, on-site inspection, and other prescribed matters will not be counted towards the six-month period. During the first half of 2019 when the SSE accelerated its review of a bevy of applications, 31 applicants got approval from the SSE; it took an average of just 81 calendar days for the 31 applications to get to the CSRC for registration after being accepted by the SSE, and the average time for the SSE to accept, review and approve an application was 40 calendar days (27 calendar days in the fastest case), far shorter than the prescribed six- and three-month limits. But for all that, the 2019 record of speedy review belongs to the Main Board of the SSE, where it took Beijing–Shanghai High-Speed Railway Co., Ltd. just 23 days to pass the CSRC’s review from the submission of its application.

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The roles and functions of some participants in the application and review process of a STAR IPO differ from those in any other A-share IPO. Firstly, the bulk of the authority to review information submitted by IPO prospects is delegated to the stock exchange, which gives the SSE power to review applications for STAR IPOs, while the CSRC is responsible for registration of the IPOs and may monitor the stock exchange and examine the issue conditions and information disclosure of issuers. Secondly, STAR gives high priority to information disclosure by, inter alia, putting emphasis on the truthfulness, accuracy and completeness of information disclosed by issuers and their advisors/service providers and obliging them and relevant personnel to adequately fulfil their duties in providing sponsorship services and to take liability in case of violation of the same. Lastly, the SSE has a rule in place that subjects the relevant subsidiary of a sponsor to mandatory co- investment. This requires the subsidiary to sign a placement agreement with the issuer in advance, undertaking that it will, with its own funds and at the issue price, subscribe for 2% to 5% of the shares to be issued by the issuer in its IPO and hold the shares for two years. The mandatory co-investment rule places both capital constraints and financial pressure on sponsors, which serves as an incentive for sponsors to step up their monitoring of IPO quality and ensure the appropriateness of IPO pricing. This in turn can put sponsors in a benign circle of capital replenishment.

Regulatory architecture: Overview of the regulators and key regulations 2019 witnessed a change in the layout of China’s securities market. Besides its existing SSE (Main Board) and SZSE (Main Board, SME Board and ChiNext), China launched the STAR that operates on the basis of a pilot registration system. Compared with other A-share boards where IPO applications are reviewed by the CSRC, the STAR requires its IPO prospects to be subject first to the SSE’s substantive review in terms of their compliance with IPO, listing conditions and information disclosure requirements, and then to IPO registration by the CSRC, which at the same time retains some substantive review power. In 2019, the fundamental system of China’s A-share IPO laws still consisted of the Company Law, the Securities Law, the Measures for the Administration of Initial Public Offerings and Listings, and the Measures for the Administration of Initial Public Offerings and Listings

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Zhong Lun Law Firm China on the ChiNext as promulgated by the CSRC, and listing rules and other detailed rules published by stock exchanges regarding information disclosure, related party transactions and other matters. However, significant development has taken place in the system. First, the New Securities Law was enacted on December 28, 2019 and will come into force on March 1, 2020. This new law brings about a series of reforms and improvements, including: (a) introducing a registration system intended to be applicable to all A-share IPOs; (b) significantly increasing the cost of violation of securities laws and regulations; (c) optimising the existing investor protection system; (d) further intensifying information disclosure requirements; (e) improving the securities trading system; (f) removing relevant administrative permissions; (g) strengthening the legal responsibility of advisors/service providers as “gatekeeper” of the market; (h) establishing and improving a multi-level capital market system; (i) enhancing regulatory enforcement and risk control; and (j) expanding the application scope of the Securities Law. Second, the CSRC, the SSE, China Securities Depository and Clearing Corporation Ltd., the Supreme People’s Court, and other institutions and departments promulgated or made a range of administrative regulations, listing rules, business guidelines, judicial documents, and regulatory questions and answers with respect to the STAR. Finally, on December 12, 2019, the CSRC released the Several Provisions on Pilot Domestic Listing of Subsidiaries Spun Off by Listed Companies, specifying the conditions, information disclosure and decision-making procedures, regulatory rules, and other matters regarding the spin-off of listed companies.3 According to the Rules of the Shanghai Stock Exchange for Listing of Stocks on the Science and Technology Innovation Board and the Measures for the Administration of Registration of Initial Public Offerings on the Science and Technology Innovation Board (for Trial Implementation), red chip enterprises that meet the relevant requirements under the Circular of the General Office of the State Council on Forwarding the Several Opinions on Launching a Pilot Program of Domestic Issuance of Stocks or Depository Receipts by Innovative Enterprises (Guo Ban Fa [2018] No.21) may apply for issuing stocks or depository receipts and listing on the STAR. In China, the key instruments involved in an IPO are a prospectus and a legal opinion. A prospectus provides the basis on which potential investors make their decisions about investment. The CSRC has set up strict rules regarding the form and contents of the prospectus, and made it the minimum requirement as regards information disclosure by each issuer.4 A prospectus is prepared by an issuer with the help of its sponsor and other advisors/service providers. The issuer and all its directors, supervisors and senior officers sign the prospectus and other securities issuance documents to guarantee a timely and fair disclosure of information by the issuer and the truthfulness, accuracy and completeness of information disclosed. The sponsor and its representative in charge of sponsor matters are required to review the prospectus and give comments on it. The lawyer of the issuer is responsible for giving comments and issuing a legal opinion on all legal matters relating to the issuer’s intended IPO. Aside from the prospectus and legal opinion, the sponsor must also give its recommendation opinion and issue a sponsor’s letter regarding the IPO. Moreover, the sponsor and the lawyer should prepare a sponsor’s work report and a lawyer’s work report, respectively, for the offering. Guidelines released by the CSRC on contents and forms of prospectuses set out the minimum requirements for information disclosure regarding IPOs. All information that would have a material impact on investors’ investment decisions should be disclosed, regardless of whether it is explicitly provided in the guidelines or not.5 Each issuer is required to pre-disclose its preliminary prospectus on the website of the CSRC or the stock exchange (STAR) after its application is accepted, and before the review authority reviews the application documents.

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Once the CSRC approves the application or agrees to register the IPO, the issuer may proceed to publish its preliminary prospectus and conduct IPO promotion and price inquiry together with the lead underwriter. Before shares are subscribed for, the issuer should post its complete prospectus, containing an issue price and an IPO and listing announcement, on the websites designated by the CSRC and the stock exchange where it is to be listed. In addition, the Securities Law makes it clear that an issuer must make public its financial and accounting reports if it intends to offer new shares to the public pursuant to law. It is noteworthy that the New Securities Law introduces a special chapter (chapter five) dedicated to information disclosure. This is the first time that the Securities Law has devised a complete regulatory system for “obligors of information disclosure”. Some of its highlights include: (i) the New Securities Law redefines the standards for information disclosure by adding “timely”, “concise and clear”, “easy to understand”, etc. on top of the “true”, “accurate” and “complete” requirements contained in the current Securities Law; (ii) the pivotal part of the registration system is information disclosure. Based on the information disclosed by the obligors, investors can gauge the values of securities and make an investment decision. This makes “ad hoc reports” and “major events” especially important to investors. The new law also fleshes out “major events” that may affect stock trading prices; (iii) the New Securities Law lays more stress on the disclosure obligations of controlling shareholders, actual controllers, directors, supervisors and senior officers of issuers; and (iv) violation of disclosure obligations will subject violators to greater liability, such as a significantly increased penalty. The new law also brings in the mechanism of “securities representative litigation”, which provides a legal basis for investors to lodge civil claims against issuers and other responsible persons for false statement or other securities-related violations. Another focus of attention in 2019 is transfer of listing of NEEQ-listed selection layer companies on the SSE or SZSE. On December 20, 2019, the NEEQ released the revised Measures for the Administration of Supervision of Non-listed Public Companies and the Measures for the Administration of Information Disclosure of Non-listed Public Companies and, in January 2020, rolled out a series of guidelines and business rules for the contents and forms of information disclosure by non-listed public companies. As these rules and relevant regulatory policies provide, public companies in which shares can be transferred publicly may issue shares to unspecified qualified investors on the NEEQ, with the support of services provided by sponsors and underwriters. The threshold for entry in the selection layer is concentrated on market capitalisation, and all entry requirements are significantly lower than the conditions for listing on the STAR and the average level of ChiNext-listed companies. According to the relevant documents and regulatory policies that have not yet been officially released, a NEEQ-listed company in the selection layer may be allowed to apply for transfer of listing on the SSE or SZSE after it has been listed on the NEEQ for one year. To that end, the company must acquire its internal corporate approval, be sponsored by a securities company, apply to the stock exchange for transfer of listing, and obtain a green light from the stock exchange, but no approval is needed from the CSRC. The major difference between a transfer of listing and an IPO lies in the stage of public offering. Transfer of listing only involves listing of shares pre-transfer and is governed by listing standards that are basically the same for an IPO.

Public company responsibilities According to the Securities Law, the Measures for the Administration of Information Disclosure by Listed Companies and other relevant regulations, the documents that a listed company is obliged to disclose include regular reports and ad hoc reports. Regular reports

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Zhong Lun Law Firm China include annual reports, interim reports and quarterly reports. In case of a major event which is likely to cause a material impact on the trading price of securities issued by a listed company, but is not yet known to its investors, the listed company is obligated to promptly report to the CSRC and the stock exchange in the form of an ad hoc report and disclose the same to the public. To reinforce the corporate governance of listed companies, the CSRC released a revised version of the Guidelines for Articles of Association of Listed Companies on April 17, 2019 following its revision of the Standards for Corporate Governance of Listed Companies in 2018. The revised guidelines: (i) clarify the requirements for articles of association of listed companies that issue shares with special voting rights, and this move is aimed to fit in with the STAR’s rule that allows STAR IPO prospects to develop their special voting right systems; (ii) lay down more statutory circumstances under which listed companies may purchase their own shares; (iii) forbid listed companies from changing the locations of their on-site meetings of shareholders without a justifiable reason; (iv) allow the shareholders’ meeting to remove any director under statutory circumstances before his or her term of office expires; (v) give more weight to the role of the audit committee of theboardof directors; and (vi) improve the requirements for appointment of senior officers of listed companies. At the same time, with the implementation of the IPO registration system in China’s A-share market in 2019, the regulators have kept a closer eye on the quality of information disclosure. This imposes a more stringent disclosure obligation on listed companies and relevant advisors/service providers and personnel, and a violation of the same may lead to more serious legal consequences. The Rules of the Shanghai Stock Exchange for Listing of Stocks on the Science and Technology Innovation Board introduce a special chapter on social responsibility, according to which STAR-listed companies have a compulsory obligation to disclose information concerning their performance of social responsibility. The rules require that “listed companies shall actively assume social responsibility, safeguard public interests, and disclose information regarding their performance of social responsibility with respect to, among others, environmental protection, guarantee of product safety, and protection of legitimate rights and interests of their employees and other stakeholders”. Listed companies shall disclose information on their performance of social responsibility in their annual reports and, where appropriate, prepare and disclose their social responsibility reports, sustainable development reports, environmental responsibility reports, and other related documents. In case a company commits a major violation of its social responsibility, it should thoroughly evaluate the potential impact of the violation and make timely disclosure of the same, stating the reasons and proposing solutions.

Potential risks, liabilities and pitfalls In relation to a company’s IPO, if there are any false records, misleading statements, or major omissions in its prospectus, documents prepared by its advisors/service providers, or other information disclosure documents, the company and its relevant persons, as well as its sponsor and advisors/service providers and their respective personnel responsible for the above misconduct, will be held civilly, administratively or even criminally liable according to the New Securities Law, the Criminal Law, and other applicable laws and regulations.6 The New Securities Law also imposes harsher punishment on illegal activities in the securities sector7 and gives more substance to provisions regarding civil compensation liability for those activities, such as civil compensation liability for issuers’

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Zhong Lun Law Firm China failure to honour their public commitments. The Law also sets out presumed fault and joint and several liability of the controlling shareholder or actual controller of an issuer for fraudulent issuance or illegal information disclosure. The New Securities Law and STAR-related rules, regulations and regulatory policies place more emphasis on the legal responsibility of advisors/service providers as “gatekeeper” of the market. For instance, a sponsor or underwriting securities company and its directly responsible personnel will be presumed to be at fault and shall bear joint and several liability to victim investors if it and the personnel fail to fulfil their duties; the penalty imposed on a securities service provider who fails to fulfil its due diligence obligation is increased from the original five times to the current 10 times its business income, and if the failure is serious, the service provider will at the same time be suspended or prohibited from conducting securities service business. In practice, we have seen some advisors/service providers who were imposed with regulatory measures or administrative punishment by the CSRC or stock exchange for their unauthorised modification of listing application documents, imprudent verification, flawed due diligence, poor implementation of key verification procedures, or failure to prepare application documents or respond to IPO inquiry in a compliant, prudent and diligent manner. For good measure, upon its successful IPO, a listed company must also take note of laws and regulations relating to lock-up of shares held by shareholders, limitations on share reduction and short-swing trading, ban on insider trading, sensitive period, information disclosure, and so forth.

* * *

Endnotes 1. Unless otherwise stated, all data quoted in this article is sourced from the official websites of the CSRC, stock exchanges, etc. or from databases, such as Wind. 2. As the regulatory authorities have stepped up their regulation of IPO prospects and cracked down on illegal activities in information disclosure, in 2019, 74 IPO applicants withdrew their applications from the CSRC on their initiative, and another 26 STAR IPO applications were either terminated or rejected by the CSRC or withdrawn by their applicants, according to statistics. 3. The Several Provisions on Pilot Domestic Listing of Subsidiaries Spun Off by Listed Companies provides that a spin-off of a listed company refers to an IPO or restructuring and listing of certain business or assets of the listed company on a domestic securities market in the form of a subsidiary under its direct or indirect control. 4. See Article 41 of the Measures for the Administration of Initial Public Offerings and Listings. 5. See Article 80 of the New Securities Law. 6. See Articles 85, 181 and 182 of the Securities Law of the People’s Republic of China and Article 160 of the Criminal Law of the People’s Republic of China. 7. For example, the maximum fine imposed on fraudulent issuance is increased from 5% of funds raised to 100% of funds raised; for illegal information disclosure, the maximum fine is raised from RMB 600,000 to RMB 10 million; and where the controlling shareholder or actual controller of an issuer organises or instigates any person to make a false statement, or conceals any relevant information, thus leading to a false statement, a penalty of up to RMB 10 million may be imposed.

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Shiwei Zhang Tel: +86 10 5957 2022 / Email: [email protected] Mr. Zhang’s principal area of focus is capital markets. Since he began his legal career in private practice in 1999, he has advised the primary international investment banks/funds and a number of PRC-related private and State-owned enterprises in hundreds of deals related to capital markets, in the full spectrum of emerging and traditional sectors, from internet, telecom, media and technology (“TMT”) to real estate, infrastructure, medicine, energy, natural resources, banking, finance, manufacture, commerce and consumption, etc. In these deals, his responsibilities have covered structuring, opining, due diligence, negotiation, documentation, compliance and approval application. Such abundant experience, combined with reliable professional skills, allow Mr. Zhang to successfully accommodate clients’ commercial needs with Chinese laws and the regulatory framework. Honors and awards received: • China Business Law Journal, Deals of the Year (2019) (two deals listed). • International Financial Law Review (“IFLR”), Private Equity Deal of the Year. • Asia Legal Business (“ALB”), Top 15 M&A Lawyer of the Year. • Asia Legal Business (“ALB”), M&A Deal of the Year. • M&A Today, Partner of the Year. • The Asian Lawyer, M&A Lawyer of the Year.

Zhong Lun Law Firm 28/31/33/36/37F, SK Tower, 6A Jianguomenwai Avenue, Chaoyang District, Beijing 100022, P. R. China Tel: +86 10 5957 2288 / URL: www.zhonglun.com

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Demetris Roti, Yiota Georgiou & Rafaella Michail Elias Neocleous & Co LLC

Introduction In 1993 and 1995, the House of Representatives in Cyprus enacted the Cyprus Securities and Stock Exchange Laws and Regulations, respectively, under which the Cyprus Stock Exchange (“CSE”) was established. The authority regulating the CSE is the Cyprus Securities and Exchange Commission (“CySEC”), which was established by virtue of the Cyprus Securities and Exchange Commission (Establishment and Responsibilities) Law of 64(I) 2001. The general mission of CySEC is to exercise effective supervision in order to ensure investor protection and healthy development of the securities market. The first trading session on the CSE was held on 29 March 1996. On 1 October 2009, the emerging companies market of the CSE (the “Emerging Companies Market”), which is a market in the form of a multilateral trading facility, began operation. The CSE currently operates a non-regulated market (the Emerging Companies Market) and a regulated market (the “Regulated Market”). There are seven Regulated Markets on the CSE: 1. the Main Market; 2. the Alternative Market; 3. the Surveillance Market; 4. the Treasury Bills; 5. the Government Bonds; 6. the Corporate Bonds; and 7. the Warrants. The decision of a local or a foreign company to go public by obtaining a listing on the CSE and conducting an initial public offering IPO(“ ”) is typically based on several factors. Listing on the CSE may lead to business development and growth by raising capital through more conventional ways while, for smaller investors, such listing may offer alternative possibilities and options for more productive and effective investments. One of the major features of Cyprus’ economy is the large number of small to medium- sized enterprises which, although trustworthy and credible, face the peril of being exposed to strong competition as a result of Cyprus’ membership in the European Union (“EU”). Listing on the CSE offers growth potentials to such enterprises by giving them access to funds which enables them to raise the necessary capital and finance their development and growth activities. The Stock Exchange also offers alternative options and possibilities for investments. It is therefore used as a channel through which savings can be directed to the most productive and effective investments. Following the liberalisation of the interest rates and the elimination of the capital flow restrictions, local companies that are listed on the CSE are able to utilise their funds by investing abroad while foreign companies are given

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Elias Neocleous & Co LLC Cyprus the opportunity to invest in local markets with the ability to liquidate their investments at all times. Listing on the CSE also offers publicity to such companies (i.e. through the annotations associated with this fact) which helps them to enhance their corporate image. More importantly, being a shareholder in a listed company offers numerous tax incentives. For example, the 17% withholding tax on dividends is not imposed on the non-resident shareholders of listed companies (i.e. legal or physical persons). In addition, the 20% capital gains tax that is imposed on gains resulting from the disposal of shares in companies which hold immovable properties situated in Cyprus is not applicable for listed companies either. Further, foreign investors may be particularly benefitted in cases of a double taxation avoidance treaty between Cyprus and the foreign investor’s country of origin. Moreover, any profits arising from the sale of securities by Cyprus tax residents are exempted from income tax and are therefore not subject to the special defence contribution. After the economic crisis and the banking crisis in 2013, the Council of the CSE (in close collaboration with other stakeholders and authorities), reorganised the CSE. This reorganisation aimed, inter alia, to: (a) minimise any bureaucracy via the use of advanced technology; (b) create new products within and outside the traditional framework of exchange (i.e. funds); and (c) modernise the applicable laws (i.e. amend Cyprus laws, transpose EU regulations and directives into national law, strengthen the Corporate Governance Code (the “Code”)). In addition, the CSE has entered into various memoranda of understanding with other stock exchanges over the last few years for the purpose of facilitating cooperation with strategic partners. To that end, one could argue that the latest formulations of the regulatory scheme and market practices have prepared the ground for a potential increase in the number of listed entities in Cyprus, since the CSE has undertaken significant reforms, aimed at making it even more competitive. The effect of the above reforms is also reflected in numbers. More specifically, more than 60 companies have been listed on the CSE since 2013. From 2019 to date, 17 companies have been listed on the Emerging Companies Market, offering common stocks to the public, whereas no company has been listed on the Regulated Market. The numbers show that only four companies have been listed on the Regulated Market of the CSE since 2013. In comparison to the Main Market, the overwhelming majority of companies are now listed on the Emerging Companies Market. This trend may be explained, if we consider that the Emerging Companies Market does not come under the Regulated Markets’ mandatory provisions that impose strict listing requirements. It therefore offers more flexibility to the companies listed therein which are governed by a more simplified regulatory regime, designed for the needs of: (a) unlisted companies that are seeking to finance their activities or the liquidity of their shares through secondary markets (i.e. small, medium-sized enterprises); (b) investors who are seeking new types of investment with higher risk; (c) companies that are already listed on the Regulated Market but cannot afford the high costs associated with their listing or the excessive reporting obligations; or (d) companies that are seeking to float their securities to a recognised secondary market of an EU Member State. More specifically, the Emerging Companies Market: (a) allows for newly established companies to trade on the CSE, provided that investors are equipped with sufficient information that enables them to access properly the value of the titles;

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(b) allows listing with lower costs compared to the Regulated Market; (c) provides an exit option to the investors; (d) does not set any market capitalisation requirements or any thresholds as to the minimum shareholders’ equity capital. The only set requirement is for the issuer to be a public company with a sufficient number of investors; (e) does not oblige companies to be governed by the Code (i.e. optional); (f) does not set any minimum percentage of shares to be held by the public (i.e. free float); (g) does not follow an excessive listing process (i.e. issuers are required to prepare and submit to the CSE the company’s history of business and its business plan – no financial forecast is required, information as to the company’s directors, shareholders, risk factors, audited financial statements prepared at least two years prior to the listing, etc.); and (h) provides for fewer reporting obligations. Today, the members of the CSE are mainly banks, investment and insurance companies, brokerage offices, hotels and travel agents.

The IPO process: Steps, timing and parties and market practice In order for any company to be listed on the CSE, it must first be a public company. Companies that are not already designated as public must follow a conversion procedure before they proceed to apply for a listing. The first phase of conversion consists of two steps: a) the prior application step; and b) the post-application step. In terms of the prior application step, the shareholders of the company shall convene a general meeting of members or pass a unanimous written resolution and resolve, among others: (a) to re-register the company from private to public and to alter its name, as required by law; (b) to alter the company’s memorandum so that it states that the company is to be converted into a public limited company; (c) to alter its articles of association so that any restrictions that apply to private companies are deleted (i.e. restrictions on the transfer of shares, limited number of members (up to 50), prohibitions on sending invitations to the public to subscribe for company’s shares and debentures, etc.); (d) to make any alterations to the members/officers of the company as appropriate; (e) to empower by ordinary resolution the directors of the company to proceed with the conversion; and (f) to pass a resolution resolving the increase of the company’s share capital. According to section 4A of the Companies Law, Cap 113 (the “Companies Law”), the minimum authorised, issued and paid-up share capital of a public company shall be at least CYP 15,000 (€25,629). The company will then convene a meeting of the board of directors, approving the above resolutions and instructing the secretary to proceed with all necessary filings with the Registrar of Companies in Cyprus (the “RoC”). The secretary, upon the instructions of the directors, files the application for the conversion from private to public company to the RoC along with, inter alia, the following documents: (a) an extract of the resolution of the shareholders of the company (as described above); (b) the relevant RoC forms; (c) the register of shareholders certified by the secretary or the director of the company; (d) a copy of a bank statement indicating that the company has complied with the minimum capital requirements as set out above;

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(e) an affidavit confirming the true and accurate translation of the above documents (where necessary); and (f) the company’s prospectus or the statement in lieu of the prospectus. The RoC will then review the application and, provided that all of the requirements have been met, a certificate of change of name will be issued. The whole procedure for the conversion of a private company to public usually takes around four weeks. Said timeframe varies from case to case, depending on the workload of the RoC and the ability of the parties to act in a prompt and timely manner. Generally speaking, the time frame for convening the meeting of the shareholders is 21 days, unless the shareholders consent to the holding of the meeting in fewer days than the statutory period. The drafting of the necessary corporate documents and the amendments to the articles of association usually takes one week, while the holding of the meeting of the board of directors is convened immediately after the articles of association are amended. The issuance of certificates by the RoC takes one to three weeks, depending on whether the officers or the shareholders of the company are to be changed (which usually delays the issuance of certificates). The second phase of the conversion is the process of having the company listed. The listing of a company on the CSE may take either the form of a public offer or a private placement (or a combination of these two methods). In order to list a company on the CSE, both general and specific listing conditions must be met. First of all, the company shall be legally incorporated and existing, having powers to issue securities to the public according to its memorandum and articles of association. The listing relates only to the same category securities. It must also ensure the equal treatment of the beneficiaries of the same category securities. A very important condition for the company’s securities to be listed on the CSE is for the shares to be fully paid up. The issuer shall be also ready to hand over its registry to the Central Securities Depository and Central Registry. Where a newly established company wishes to list its securities on the CSE and the issue price of these securities is different from its nominated value, the company shall appoint an investment or audit firm to undertake a valuation of its securities. In terms of companies who want to list their shares on the Emerging Companies Market, it is a necessary prerequisite to appoint a nominated advisor. The nominated advisor presents the issuer to the CSE and represents it through the listing process, ensuring that the listing requirements are fulfilled at all times, and advises it on compliance issues (i.e. compliance with the continuous listing obligations). In addition, depending on the market (regulated or not) in which the company wishes to be listed, there is an obligation to submit audited accounts for the period of up to either two or three years before listing. Where an issuer has its securities listed on a foreign stock exchange, it shall firstly comply with the terms and conditions of the CSE before proceeding with the listing in Cyprus. More importantly, every company that wishes to list its securities on the CSE must publish a prospectus. The prospectus must be submitted to CySEC by the prospective issuer for approval before its publication.

Regulatory architecture: Overview of the regulators and key regulations IPOs in Cyprus are governed by numerous and complex laws and regulations enacted in accordance with the European legal and regulatory framework on such matters. The main legislation which governs IPOs is Regulation (EU) 2017/1129 of the European Parliament

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Elias Neocleous & Co LLC Cyprus and of the Council 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 (the Regulation“ ”), and Public Offer and Prospectus Law (L.144(I)/2005), as amended (the Prospectus“ Law”). The Prospectus Law was enacted in Cyprus for harmonisation with Directive 2003/71/EC of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading (the Directive“ ”). The Directive has recently been repealed by the Regulation, which is directly applicable in Cyprus and inevitably amends the Prospectus Law. As a result, the provisions of the Regulation (including its supplementing regulations and guidelines) have been applicable in Cyprus since 21 July 2019. In view of the Regulation’s full applicability, CySEC has announced that the drafting of a new law regulating matters that need to be determined as per the Regulation is expected soon, which will also be repealing the Prospectus Law. Other principles that govern IPOs are also provided in the Companies Law and the Code, as described herein. It must be noted that the Prospectus Law provided some specific authorities to CySEC for the governing of an IPO in Cyprus. Following the new Regulation, on 5 July 2019, CySEC was appointed as the competent authority responsible for the duties set forth in the Regulation and for compliance with it, as per Article 31 of said Regulation. As further, stated in the announcement of CySEC dated 19 August 2019, CySEC will be approving the prospectuses, which will be drawn up and distributed as per the Regulation. CySEC has further announced that, as per the discretionary powers provided to Member States by Article 11 of the Regulation, the existing sections 20–24 of the Prospectus Law shall apply until a new law is enacted. In this regard, the final form of the prospectus is signed by the offeror or the person asking for the admission of securities to trading on a regulated market. It is also signed by any person whom the prospectus lists as responsible for providing the information stated therein. Where the offeror or the person asking for the admission of securities to trading is a legal person, the prospectus shall be signed in any case by at least three executive members of the board of directors (and at all times by the president of the board and the managing director or managing directors, where there is more than one). These people are responsible for the accuracy, completeness and clarity of the prospectus, while ensuring that the information contained therein is up to date. Further, every public offer involves an underwriter who is at least responsible for the collection of the purchase value of the securities offered. Such underwriter shall oversee the safe keeping of the money paid by the participants to the public offer, and shall ensure that the money is made available to the offeror, while arranging for the allocation of the offered securities to investors who have participated in the public offer. The underwriter, who is responsible for the drawing-up of the prospectus, also signs the prospectus. In addition, taking into consideration the discretionary powers provided to the Member States by Article 3(2) of the Regulation, the Prospectus Law was amended to include the provisions that public offers of securities in the EU, whose total consideration for such offer in the EU is less than €5,000,000, as calculated for a period of 12 months, are exempted from the obligation to publish a prospectus, provided that they do not fall under Article 25 of the Regulation.

Public company responsibilities In terms of public companies’ responsibilities, it should be noted that public companies, and especially publicly listed companies, are under stricter control than private companies.

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In comparison to private companies, public companies shall fulfil, inter alia, the following obligations: (a) have at least seven members, with no maximum; (b) have at least two directors; and (c) have minimum authorised and paid-up share capital of CYP 15,000 (€25,629). Publicly listed companies are subject to a stricter regulatory regime than non-listed companies. More specifically: (a) when a company is listed on a regulated market, it is obliged to publish on its website a number of documents when convening its general meeting, including the notice of the meeting, stating the total number of shares and voting rights at the date of the notice, copies of the draft resolutions or comments from the directors for each item on the proposed agenda of the general meeting, and copies of the forms to be used by a proxy to vote; (b) notification obligations on any increases or updates of the shareholdings or voting rights (i.e. dispersion report on a quarterly basis, information on transactions of directors and major shareholders for companies listed on the Regulated Market); (c) notification obligations, to CySEC and the market on which such securities are traded, on any amendments of the memorandum and articles of association of the company or any change to the rights attaching to any class of shares; (d) depending on the market on which companies are listed, further obligations are imposed as to market capitalisation threshold, minimum equity capital, preparation of the qualified auditors’ report, reporting obligations on the company’s financial results (obligation to publish annual and biannual financial statements), obligation to announce the holding of a board of directors meeting in advance; and (e) compliance obligations with the provisions of the Market Abuse Regulation 596/2014 of the EU (the “MAR”) and the Market Abuse Law (L.102(I)/2016) regarding inside information and insider dealings for securities and disclosure obligations to persons discharging corporate management responsibilities. Regarding corporate governance standards in Cyprus, no particular legislation is currently in place for private or public companies, other than the Companies Law, which provides principles for the operation and management of a company. On the other hand, companies that are listed on the CSE may follow the recommendations of best business practices in Cyprus as well as international practices, as provided by the Code. The aims of the Code are, inter alia: (a) to strengthen the monitoring role of the board of directors in listed companies; (b) to protect small shareholders; (c) to adopt greater transparency; and (d) to provide timely information, as well as sufficient safeguarding, on the independence of the board of directors in its decision-making. The Code further provides principles for enhancing the relationship between the managing body and the company’s shareholders.

Potential risks, liabilities and pitfalls The process of becoming listed on the CSE, and conducting an IPO, entails important risks, which require a high level of diligence from the lawyers, auditors, financial consultants and the company itself. Taking professional advice is of utmost importance to avoid any such risks.

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As explained above, the persons signing the prospectus are responsible to the investors for the information provided therein. Unless the case concerns malicious intention by the persons signing the prospectus, such claim has a statutory bar of two years after the allocation of the securities or their admission to trading on a regulated market. Further, the underwriter responsible for the drawing-up of the prospectus, as mentioned above, shall be liable to the investors who acquired securities based on erroneous, deficient or insufficient information contained in the prospectus and for any loss suffered by those investors as a result of the drop of the price of the securities after the deficiencies in the prospectus were revealed. Such claim against the underwriter is time-barred a year after the allocation of the securities or their admission to trading on a regulated market. Any person issuing statements for the drawing-up of the prospectus, with its professional capacity, is liable against investors for any loss suffered in the event where the prospectus contains inaccuracies or material omissions due to deficiencies in those statements. Publicly listed companies are at all times obliged to comply with the particular listing requirements of the CSE. In particular, it should be noted that investing in the Emerging Companies Market entails a higher risk, since it is governed by a simpler regulatory framework designed to meet the needs of small and emerging companies; as such, enhanced examination of all the circumstances surrounding such companies is recommended before an investment is made.

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Demetris Roti Tel: +357 25 110161 / Email: [email protected] Demetris Roti is a Partner in the Corporate and Commercial department of Elias Neocleous & Co LLC. He graduated in law from the University of Manchester, UK in 2004. He completed the Legal Practice Course in BPP in Manchester in 2005 and was admitted to the Cypriot Bar in 2010. He gained experience in a large City firm in London before joining the firm in 2009. Demetris’ areas of practice are corporate, commercial law and banking and finance. He speaks Greek, English and Czech.

Yiota Georgiou Tel: +357 25 110177 / Email: [email protected] Yiota Georgiou is an Associate in the Corporate and Commercial department of Elias Neocleous & Co LLC. She has experience in commercial and corporate law matters, as well as in shipping law and litigation. She obtained her LL.B. in Law from the University of Essex in 2015 and her LL.M. in Commercial and Corporate Law from Queen Mary University of London in 2016. Yiota was admitted to the Cyprus Bar Association in 2017.

Rafaella Michail Tel: +357 25 110211 / Email: [email protected] Rafaella Michail is an Associate in the Banking and Finance and Financial Services department of Elias Neocleous & Co LLC. Rafaella was admitted to the Cyprus Bar Association in 2018. She has experience in financial services, banking and corporate law matters. She obtained her LL.B. in Law from the University of Cyprus in 2016 and her LL.M. in Corporate and Financial Law from the University of Glasgow in 2017.

Elias Neocleous & Co LLC Neocleous House, 195 Makarios III Avenue 1–5th floor, Limassol, CY-3030, Cyprus Tel: +357 25 110110 / Fax: +357 25 110015 / URL: www.neo.law

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Maria Lehtimäki, Niko Markkanen & Emilia Saloranta Waselius & Wist

Introduction After the turn of the millennium, the burst of the technology bubble and the sharp decline of the previously booming technology sector drove the Nordic IPO market to a halt. The impact on the Finnish market was particularly brutal and long-lasting, listings were rare, and in the falling market the regulator’s focus turned to cases of prospectus liability and market abuse. In an attempt to entice smaller companies with less extensive IPO requirements, Nasdaq Helsinki introduced the First North to the Finnish market as early as 2007. First North is a multilateral trading facility that provides an alternative marketplace for growth companies which do not yet meet the requirements for listing on the regulated market. Around half of the companies floated in 2007 applied for trading on First North. However, the overall popularity of IPOs remained relatively low for the first decade and a half of the new millennium. Finally, in 2015, activity picked up again. The improved economic situation in Finland and the new wave of start-ups and innovations, together with the strongly performing stock market, offered attractive opportunities to entrepreneurs and private equity investors seeking new capital or exit. At the same time, the tighter rules for bank financing have imposed balance sheet requirements and encouraged companies to seek more equity as opposed to debt for financing their growth. The implementation of the Transparency Directive in 2015 decreased the administrative burden of listed companies, as the previous domestic requirement for quarterly reporting was replaced by the requirement to publish just one semi-annual report. In terms of recent developments, since 2018 the promisingly growing IPO market has started to slow down, and the year 2019 saw only seven IPOs: EAB Group and Optomed were listed on Nasdaq Helsinki, whereas LeadDesk, Aallon Group, Relais Group, Fodelia and Faron Pharmaceuticals were admitted to trading on First North. Not only did the number of IPOs decrease significantly during 2019 compared to the previous year but also the market value of the companies listed. One key reason explaining the slowing of the Finnish IPO market is the current global uncertainty, and the contracting economic situation has also taken its toll. The beginning of 2020 has brought new challenges for IPOs with the markets experiencing turbulence and the outbreak of COVID-19 complicating business at a global scale. The most significant change in the regulatory framework surrounding IPOs is thenew Prospectus Regulation (Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017) which became effective on 21 July 2019. The aim ofthe Prospectus Regulation is to ensure investor protection and market efficiency. The Prospectus Regulation repealed the domestic rules on prospectuses and brought more uniformity as well

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Waselius & Wist Finland as more opportunities and requirements for issuers. The Prospectus Regulation introduces the possibility of using different types of prospectuses: a standard prospectus; a wholesale prospectus for non-equity securities; a base prospectus; a simplified prospectus for secondary issuances; and an EU Growth prospectus. The various forms of prospectuses, and relaxed requirements in certain circumstances as a result, provide new opportunities especially for small and medium-sized enterprises and frequent issuers. Further, Nasdaq Helsinki has published a draft of a new Nordic Main Market Rulebook for Issuers of Shares which is contemplated to replace the current Rules of the Exchange with effect from 1 May 2020. According to the draft, the rules covering IPOs remain essentially the same; however, some new rules regarding, e.g., sanctions screening and the minimum number of shareholders to ensure supply and demand are introduced. The issue of higher tax on dividends received from listed companies by private persons compared to dividends from unlisted companies is a topic frequently raised and discussed in public discourse. However, no proposals for amendment are currently pending.

The IPO process: Steps, timing and parties and market practice The IPO process on Nasdaq Helsinki can be divided into three stages: the preparatory stage; the actual listing process; and the life after listing. A typical timeframe for the completion of an IPO on Nasdaq Helsinki is three to six months. However, the entire IPO process from the decision to go public to the first trading day, including all the planning and preparation, may take six to 12 months as a whole. A listing process usually starts by the company changing its legal form from a private limited company to a public limited company and amending its articles of association, capitalisation, composition of the board of directors and other governance to suit the requirements of a listed company. Any restrictions on the transferability of the company’s shares must be removed. Also, to meet the applicable listing requirements, the company must replace its paper-form share certificates or registered shares with book-entry shares issued in the Finnish book-entry securities system (or in a book-entry system maintained by a foreign depositary, as allowed since the implementation of the CSD Regulation in 2017). Implementing these corporate changes requires shareholders’ and board resolutions and the changes must be filed with the Trade Register for registration and publication. The shares offered in an IPO may be new shares or existing shares or, as is often the case, a combination of new shares issued by the company and existing shares sold by the current shareholders. Where new shares are issued, it is customary for the shareholders’ meeting to authorise the board of directors to make the final resolution on the issuance, allocation and pricing. The shareholders’ meeting may in such case take place well in advance of the IPO, while the board of directors would pass its resolution on allocation and pricing only at the end of the offer period. Prior to listing, the issuer is required to organise its administration and financial reporting and monitoring in a manner that enables the issuer to fulfil the obligations imposed on a public company relating to, e.g., disclosure and corporate governance. A company with an IPO prospect would, therefore, have to build up its reporting, risk management and communication functions and train its personnel to produce the requisite financial information and to report, manage and disclose any inside information that the company may from time to time possess. As a separate work stream, if the company has applied the Finnish accounting standards (FAS) in its financial accounts, and not the international financial reporting standards (IFRS) which are mandatory for listed companies, reconciliation of the company’s FAS financials to the IFRS would be required.

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The requirements for listing on the regulated market of Nasdaq Helsinki include the following: • the company is duly incorporated or otherwise established under the laws of its place of incorporation or establishment; • the shares conform to the laws of the company’s place of incorporation, and have the necessary statutory or other consents; • the shares are freely transferable; • the listing application covers all shares of the same class; • the company has published financial statements for at least three years in accordance with the applicable accounting standards. The company and its group have enough operating history; • the company has enough earnings capacity or working capital available for conducting its business, as contemplated in the business plan included in the prospectus, for at least 12 months after the listing; • the shares have enough supply and demand; • a sufficient number of shares are distributed to the public (comprising at least 25% of the shares of the class to be listed) and the company has an appropriate number of shareholders; • the expected aggregate market value of the shares is at least €1 million; • the management and members of the company’s board of directors have appropriate competence and experience to manage and govern a listed company; • the company has adequate procedures, controls and systems in place to provide the market with timely, reliable, accurate and up-to-date information; and • the company discloses how it will apply and comply with the Corporate Governance Code published by the Securities Market Association. The lead arranger typically guides the company through the listing process and, together with the other financial advisors, also places and markets the IPO and advises the company on pricing. There are two principal methods used for the pricing of the shares: book building; and fixed pricing based on valuation and market analysis, of which book building is used more commonly. Depending on the chosen method, the price is presented in the prospectus either as a price range or as a final offering price. The financial advisors also often undertake to underwrite the offer and/or to support the share by stabilisation activities after the listing. Legal advisors are appointed to assist the company and the financial advisors with the legal documentation, in particular the preparation of the prospectus, and to advise on the process and the applicable listing requirements. The auditors of the company are engaged to review the financial information produced. Once the company has the appropriate legal form and functions, and has appointed financial and legal advisors to assist it in the IPO process, the company must commence negotiations with Nasdaq Helsinki to confirm eligibility for listing and to prepare for presentation to the Listing Committee. Concurrently, the company’s advisors would start drafting the prospectus, which is required for the listing on a regulated market and the public offer of shares, and reviewing the company’s documentation and processes in a due diligence review. Prior to the commencement of the offer period and publishing of the prospectus, the prospectus must be approved by the Finnish Financial Supervisory Authority (the Finnish FSA). The approval application to the Finnish FSA must be accompanied with the prospectus, a cross-reference list, possible documentation incorporated by reference to the prospectus and a power of attorney (if applicable). In addition, if additional marketing

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Waselius & Wist Finland material is prepared, such material must be filed with the Finnish FSA at the latest when the marketing commences (but does not require the Finnish FSA’s approval). The issuer is recommended to contact the Finnish FSA at an early stage of the listing process and make arrangements regarding the review of the IFRS financial statements. The issuer must seek approval for the prospectus from the Finnish FSA approximately one month prior to the launch of the public offer. The Finnish FSA is required to make a decision on the approval of the prospectus within 20 business days after the prospectus is submitted for its review. Once approved, the prospectus is published by the company and made available for the investors throughout the offer period. Any updates or changes to the prospectus, including the price range or final price (if pricing takes place only at the end of the offer period), are published as supplements to the prospectus. The authority to approve listing on the regulated market is vested in Nasdaq Helsinki and its Listing Committee. The issuer presents itself, its business and its financial position in the form of a company presentation to the Listing Committee approximately two to three months prior to the contemplated listing. The formal listing application is then processed in a subsequent meeting of the Listing Committee. The material of the company presentation and the listing application is delivered to the Listing Committee in draft form two weeks prior to the relevant meeting, and in final form at least one week prior to the meeting. The final approval for listing is made once the offer period has ended and a sufficient number and portion of shares has been distributed to the public. A registration fee is to be paid to Nasdaq Helsinki before the issuer submits the listing application. The rules of Nasdaq Helsinki become applicable to the issuer after submission of the listing application. The issuer is thereafter obliged to comply with, for instance, the disclosure requirements applicable to listed companies. The submission of the listing application must be disclosed to the public without undue delay. If the company is a start-up with limited history or earnings capacity, or otherwise does not meet the listing requirements of the regulated market of Nasdaq Helsinki, the company may consider applying for admission to trading on the First North multilateral trading facility. Trading on First North can act as a stepping stone for listing on the regulated market. There is no Listing Committee procedure or similar involved with First North, and the disclosure requirements applicable to companies traded on First North are lighter. There is also no requirement to comply with the IFRS.

Regulatory architecture: Overview of the regulators and key regulations The Finnish FSA is the competent authority that supervises the operators and operations in the Finnish securities markets and has the authority to approve prospectuses, grant dispensations from the statutory prospectus requirements and impose administrative sanctions for non-compliance. The Finnish FSA also supervises marketplaces, including Nasdaq Helsinki, and the clearing and settlement systems operating in Finland. The Finnish FSA is also responsible for the supervision of listed companies’ compliance with the IFRS. The Finnish FSA works in close cooperation with the European Securities and Markets Authority (ESMA). Nasdaq Helsinki operates the regulated market and First North, and in such capacity makes decisions on listings, admission to trading and delisting and, where necessary, on suspension of trading. Nasdaq Helsinki is further obligated to provide surveillance to ensure compliance with its rules and with good securities market practice. Any misconduct detected by Nasdaq Helsinki is reported to the Finnish FSA for further action.

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The regulatory framework governing IPOs and the Finnish securities market more generally is a combination of European Union (EU) regulations, national laws and regulations and self-regulation: • The Securities Market Act governs the issuance of securities to the public, disclosure requirements on the securities markets, takeover bids, prevention of market abuse and supervision of the securities market. • The Act on Trading in Financial Instruments sets out the statutory framework for listings, trading and delistings, including listing requirements. The Act on Trading in Financial Instruments also regulates the licensing and operations of regulated markets, multilateral trading facilities and organised trading facilities. • The Ministry of Finance has issued several decrees complementing the Securities Market Act and the Act on Trading in Financial Instruments with more detailed regulations. • The Finnish FSA has published a wide set of guidelines and regulations addressing, among other things, due conduct in connection with IPOs and marketing of securities, disclosure requirements and compliance with good securities market practice. The standards, recommendations and guidelines issued by ESMA are also applicable in the Finnish securities market. • Companies listed on Nasdaq Helsinki must further comply with the rules of the exchange and the specific regulations issued by Nasdaq Helsinki; for example, guidelines for insiders. • In addition, the Securities Market Association, which is a self-regulatory body, maintains the Corporate Governance Code and the Takeover Code, which are deemed to represent good securities market practice and thereby have a statutory footing in the Securities Market Act. • Finally, as in any other Member State of the EU, the EU securities market regulations are directly applicable in Finland – most importantly, the new Prospectus Regulation which, together with the Commission Delegated Regulations (Commission Delegated Regulations (EU) 2019/980 and (EU) 2019/979 of 14 March 2019), sets out the rules for the publishing of a prospectus and the applicable content requirements in connection with an IPO and listing, and the Market Abuse Regulation (Regulation (EU) No 596/2014 of the European Parliament and Council of 16 April 2014) which, together with the Commission Implementing Regulations, governs questions such as disclosure of inside information, market soundings, dissemination of research reports and stabilisation. As discussed above, different rules and regulations apply to IPOs on First North, as compared to IPOs on the regulated market of Nasdaq Helsinki, due to First North being organised as a multilateral trading facility rather than a regulated market. The rules and requirements applicable to IPOs on First North are less extensive, and the companies listed on First North are subject to lighter administrative burden and disclosure requirements. These are set out in the Nasdaq First North Growth Market Rulebook. An IPO process on the regulated market of Nasdaq Helsinki would typically include at least the following documents: • Prospectus (often in Finnish and English). • Listing application. • Agreement with Nasdaq Helsinki. • Agreement with Euroclear Finland Oy (or another clearing system providing a corresponding service). • A placing or underwriting agreement between the company and the lead arranger/ underwriter(s). • Relevant shareholders’ and board resolutions.

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• Legal opinions. • Auditor letters. • Marketing materials. • Stock exchange release to announce the results. The disclosure of information to prospective investors in an IPO process occurs through the publication of the prospectus, which is the most important legal document in the IPO process. The contents of the prospectus are specifically regulated by the Prospectus Regulation and Commission Delegated Regulations and aim at providing the investors with adequate information, enabling them to make an informed assessment of the shares and the issuer. The prospectus must include the necessary information which is material to an investor for making an informed assessment of the assets and liabilities, profits and losses, financial position, and prospects of the issuer and of any guarantor as well as the rights attaching to the securities and the reasons for the issuance and its impact on the issuer. The prospectus includes a description of the company and the management, financial information and information on accounting standards, the shares and share capital, conditions of the IPO, the company’s business and risk factors. The prospectus must also include a summary that provides the key information that investors need in order to understand the nature and the risks of the issuer, the guarantor and the shares on offer. The prospectus may be a single document, or consist of separate documents: a registration document; a securities note; and a summary. Typically, to serve both domestic and international investors, the prospectus (or at least the summary) is made available in both Finnish and English.

Public company responsibilities There are several obligations imposed on listed companies, and to a limited extent companies traded on Nasdaq First North, that do not apply to private companies. These include disclosure requirements, corporate governance requirements and obligations relating to inside information. While the disclosure regime has widely been harmonised throughout the EU, the applicable framework for corporate governance is still primarily domestic. Notable in this context is that the disclosure obligations and the rules of Nasdaq Helsinki become applicable upon the filing of the listing application, i.e., prior to the actual listing of the shares and commencement of trading. Listed companies, and to a limited extent companies traded on Nasdaq First North, are under strictly regulated disclosure obligations. They are required to inform the investors and the market of certain circumstances that are significant for the company or its business by publishing stock exchange releases. The disclosure obligation includes two legs. The regular disclosure obligation covers the regular financial reporting of the company and includes the periodic disclosure of financial statements and management reports, remuneration reports, auditor’s reports, half-year reports and financial statement releases. The ongoing disclosure obligation in turn requires the company to disclose, without undue delay, any inside information that it possesses (as further specified in the Market Abuse Regulation). The company may, however, delay the disclosure of inside information in circumstances where the immediate disclosure is likely to prejudice the legitimate interests of the issuer, the delay of disclosure is not likely to mislead the public, and the issuer is able to ensure the confidentiality of that information. Further, the Market Abuse Regulation obliges the company to maintain insider lists and to disclose transactions on the company’s shares by the persons discharging managerial responsibilities at the company and by persons closely associated with the former.

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The general legal framework for corporate governance is based on the Companies Act. The Companies Act sets out the qualifications, authorities and responsibilities of the board of directors and the managing director and includes a general obligation for the directors to act diligently in the interests of the company, as well as a principle of equality of all shares, and a so-called general clause prohibiting resolutions that confer inadequate benefit to one shareholder at the cost of the company or other shareholders. While the basic rules are the same for public and private companies, the requirements in relation to the notice periods, information obligation and majority requirements are, in some respects, more stringent in public companies. The main self-regulatory instrument addressing corporate governance is the Corporate Governance Code of the Securities Market Association. The Corporate Governance Code complements the provisions of the Companies Act and applies to companies listed on the regulated market of Nasdaq Helsinki. The purpose of the Corporate Governance Code is to promote transparency, comparability and good corporate governance, as well as to harmonise the communication practices of listed companies and increase the quantity and quality of information provided to shareholders, investors and the general public. The Corporate Governance Code includes recommendations relating to, among other things, board composition, diversity, nominations practices and remuneration. The Corporate Governance Code operates on a “comply or explain” principle, which means that the company must, in general, comply with all the recommendations set by the Corporate Governance Code or publish adequate reasons justifying a deviation from the recommendations. The Securities Market Act provides that a listed company must include a statement addressing its compliance with the Corporate Governance Code in its management report, or in a separate report describing its administration and administrative policies. Further, listed companies and their shareholders are subject to an obligation to disclose major holdings. This obligation is triggered where a holding in a listed company reaches, exceeds or falls below 5, 10, 15, 20, 25, 30, 50 or 90%, or two-thirds of the voting rights or total amount of shares of the listed company. In such case, the shareholder must without undue delay notify both the company and the Finnish FSA of the change in ownership and voting rights. The company must further disclose the information to the market. Additional disclosure and other obligations apply in the event of a takeover of the company.

Potential risks, liabilities and pitfalls The issuer is primarily liable for the contents of the prospectus published in connection with an IPO. This liability extends to the issuer’s board of directors and managing director, who are under an obligation to ensure that the prospectus is accurate and not misleading and does not omit anything required to be stated therein. A misstatement in the prospectus may give rise to an obligation to compensate any loss thus caused to an investor as well as to an administrative sanction imposed by the Finnish FSA or, should the Finnish FSA choose to press charges, criminal sanctions for market abuse. Criminal sanctions include fines or, in severe cases, imprisonment. In addition, the Disciplinary Committee of Nasdaq Helsinki may impose a warning or a fine if the issuer commits a breach of the applicable legislation, the rules of Nasdaq Helsinki, its agreement with Nasdaq Helsinki, commitments given to Nasdaq Helsinki or good securities market practice. In the event of a very serious breach, the issuer’s securities may be delisted. Under the Securities Market Act, prospectus liability also extends, in addition to the issuer and the offeror of the shares, to any party who is “commissioned to take care” of the IPO

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Waselius & Wist Finland and listing, which is generally understood to mean the lead manager and financial advisors placing the shares and marketing them to the investors. Liability to the investors may also be incurred under inaccurate marketing materials or by mis-selling. Liability under the Securities Market Act and the Penal Code is negligence-based. Therefore, any risk for prospectus or other liability may be effectively mitigated by complying with generally recommended procedures and guidelines and by ensuring that the disclosure in the prospectus and any marketing materials is in all respects compliant with applicable law, adequate, and backed by customary legal and financial due diligence reviews of the company’s affairs.

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Maria Lehtimäki Tel: +358 9 668 95235 / Email: [email protected] Maria represents banks, financial institutions and corporates in debt and equity capital markets transactions and other debt and equity investments. In 2018 and 2019, Maria was recommended as a rising star in banking and finance in theRising Stars guide by Legal Media Group.

Niko Markkanen Tel: +358 9 668 95217 / Email: [email protected] Niko regularly advises clients on public and private M&A matters and general corporate law, with a focus on corporate governance issues. Niko also advises clients in a broad range of regulatory matters, including capital markets and financial regulation and insurance company regulation. In addition, Niko has experience in debt capital markets and banking and finance transactions.

Emilia Saloranta Tel: +358 9 668 95219 / Email: [email protected] Emilia advises clients on various capital markets issues and regulatory matters. Emilia also advises clients on M&A matters and general corporate law as well as working on dispute resolution matters.

Waselius & Wist Eteläesplanadi 24 A, 00130 Helsinki, Finland Tel: +358 9 668 9520 / URL: www.ww.fi

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Hervé Letréguilly & Séverine de La Courtie Shearman & Sterling LLP

Introduction The French capital market traditionally stands out as a reliable venue for companies looking to efficiently secure equity funding for their activities and to access the European market. 2019 saw two significant IPOs: Verallia and Française des Jeux (“FDJ”), bringing France into second position in Europe behind the UK. FDJ was the most important privatisation since EDF and ADP in 2005 and 2006, respectively. The IPO was oversubscribed and priced at the top of the range. However, these two IPOs set aside, 2019 was an exceptionally low year in terms of IPOs, mainly due to market volatility and geopolitical tensions: only six other IPOs with an offering were made (one for €35m on Euronext C, and five on Euronext Growth). The Euronext Group, based in Amsterdam, manages six regulated markets: Euronext Amsterdam; Euronext Brussels; Euronext Dublin; Euronext Lisbon; Euronext London; and Euronext Paris, and acquired Oslo Børs VPS in 2019. The French branch of the Euronext Group also manages three other markets: Euronext Growth (ex-Alternext), an organised trading facility (“OTF”) dedicated to the business development of small to medium-sized companies (in particular, innovative companies operating in the new tech sector); and two specifically dedicated multilateral trading facilities (“MTFs”): Euronext Access; and Euronext Access+, targeting newly developed start-ups. However, we will solely focus on the IPO procedure for listing on Euronext Paris, unless we specifically refer to these markets for comparative purposes. Companies seeking to list their shares on Euronext Paris are subject to a number of legal and regulatory constraints, but foreign companies may benefit from several exemptions therefrom. The purpose of this overview will be to give French and foreign companies, and investors alike, an informed idea of what an IPO entails on the Paris market. Recent developments Prospectus Regulation ((EU) 2017/1129) The significant development in 2019 affecting French IPOs has been the full implementation of the new EU prospectus regime established by the new, directly applicable Prospectus Regulation with effect from 21 July 2019. Two of its provisions (exempting certain admissions to trading on a regulated market and certain offers) had taken effect in 2017 and 2018, respectively. The new Regulation has replaced the 2005 Prospectus Directive. The most significant changes brought about by the new Prospectus Regulation andof particular relevance to IPOs (as opposed to secondary offerings) include: • More prescriptive rules on the disclosure of risk factors in prospectuses. • New rules on the way in which the prospectus summary must be set out (including as to length and a Q&A format).

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• The ability of certain SME and other small issuers whose securities are not admitted to trading on a regulated market to issue an “EU Growth prospectus” which will not have to contain as much information as a full prospectus. • The ability to be able to incorporate by reference in the prospectus a wider range of information. Following the full implementation of the Prospectus Regulation, the French Autorité des marchés financiers (the “AMF”) has replaced much of the content of its General Regulation (Règlement Général) with appropriate references from the relevant directly applicable European Union (“EU”) regulations. These are: the Prospectus Regulation itself; the “PR Delegated Regulation” ((EU) 2019/980) which, among other things, sets out in annexes the detailed prescribed content of prospectuses; and the “Prospectus RTS Regulation” ((EU) 2019/979) which, among other things, sets out regulatory standards on the key financial information to be included in a prospectus summary. In 2019, the AMF issued an instruction on filing and publication of prospectuses, and is preparing a more comprehensive Guide on how to elaborate prospectuses and information to be furnished upon public offering or listing of securities, which is currently only available in draft form.

The IPO process: Steps, timing and parties and market practice A French IPO process typically takes a minimum of two months from the filing of the company’s registration document with the AMF, e.g. five to six months in the aggregate. The key steps of the IPO process are presented in the following diagram: Initial Public Offering on Euronext Paris – Timetable

Structure The parties must determine the listing venue (Euronext Paris for France), and can choose multiple listings. They will determine the scope of the international private placement, e.g. within the EU, outside of the US (“Reg S” offering) or with a private placement in the US (e.g. under rule 144A). Once approved by the AMF, the prospectus can be used to conduct a secondary listing or a public offering in any other EU Member State (“European passport”). The offering can comprise new shares, existing shares or a combination of both. The parties will determine the initial size of the offering, which can be increased in two ways.

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If the offer is successful, the offering size may be increased by up to 15% at the time of pricing (up to 25% if only secondary shares are offered) provided this option was disclosed in the prospectus (“extension clause”). IPOs will also generally include an over-allotment option (“greenshoe option”): after pricing, when allocating shares to investors, the banks will over-allot shares (e.g. allocating up to 115% of the offering to investors). To cover their short position, the underwriters will be granted the option to purchase up to 15% of additional shares issued by the company (but only if new shares are offered in the IPO) or sold by existing shareholders, at the IPO price. This option is valid for 30 days after pricing. If, at closing, the underwriters have not exercised the option, they will borrow shares for delivery to the investors; to repay the loan, they will either purchase shares on the market (thus stabilising) or, if the price is up, exercise the option. In addition, pursuant to the AMF General Regulation and recommendations, issuers must make their best efforts to satisfy demands from retail investors to a meaningful extent. This objective is deemed to have been met when at least 10% of the overall offering amount is put on the market and made accessible to retail investors. However, if such reserved shares are not purchased by retail investors, they can be reallocated towards institutional investors. In case of oversubscriptions, the AMF may rule to avoid an obvious imbalance in the allocation of securities to the detriment of retail investors. Retail investors are permitted to withdraw their purchase orders placed online during the entire book-building period. Parties involved The company contemplating an IPO must establish a “working group” which typically includes the company’s lawyers, the banks placing and underwriting the offering and their lawyers, the company’s auditors, a communication and public relations agency and, as the case may be, brokers underwriting liquidity contracts and financial/listing sponsors.1 Other parties involved may include potential pre-IPO investors, selling shareholders and their respective advisors (see below, “Anchor/cornerstone investors”). The company, its main shareholders and, as the case may be, executive officers, will be asked to grant lock-ups in order to avoid additional shares flowing in the market (for a limited duration from 90 or 180 to 365 days); the lock-up can later be waived by the underwriters (“soft lock-up”). In accordance with international market practice, a placement and underwriting agreement will be signed with the bank syndicate upon pricing, at the end of the book-building period, pursuant to which the underwriters will agree to procure purchasers for, and failing which will purchase, the offered securities, subject only to closing and market-out conditions (e.g. absence of certain events such as war, crisis or customary market disruptions). Anchor/cornerstone investors The company may want to give potential investors early access to the information contained in the draft prospectus and evaluate/assess their interest based on their reactions (“early look”), thus allowing the company to refine its “equity story”. To improve the chances of success, in particular due to the volatility of markets, companies may try to find investors willing to acquire shares before the IPO (“anchor investors”) or to agree in advance to place an order in the book (“cornerstone investors”). This trend can be seen in large transactions (investors’ pre-IPO commitments amounted to approximately 45% of the offering in the Neoen IPO and 35% of the offering in the Verallia IPO) or in smaller transactions (see, for example, Bpifrance’s commitments in various tech/

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling LLP France biotech IPOs). This requires being able to provide reliable information to these investors early enough in the process, which involves advanced preparation of the accounts and the prospectus. It also raises issues on the scope of the due diligence such investors are allowed to perform, in particular on the business plan; disclosing it to them may require the inclusion of corresponding forward-looking statements in the prospectus. Research reports Once approved by the AMF, the registration document (which is the document describing the company – see below, “Legal documentation”) must be made available to the public without undue delay (the draft AMF Guide recommends no later than five trading days prior to the date the AMF grants its approval of the prospectus, which is typically the day preceding the launch of the offering). In that case, the company may not disclose material information contained in the registration document to any person not bound by confidentiality, which until recently obliged the company to publish the registration document before holding the analysts’ presentation. However, the AMF relaxed its doctrine in 2015 and now allows presentations to the analysts of the bank syndicate to be made prior to the publication of the registration document, in line with international practice; analysts may therefore prepare their reports earlier, which reduces the overall duration of the process and improves the chance of taking advantage of favourable market windows. Publication of research reports will be subject to restricted/blackout periods in line with international practice (there are no specific French rules on this issue). Determination of the share price The offering can start once the AMF has granted its approval of the securities note which, with the registration document previously registered and the summary, forms the prospectus. The prospectus must at least indicate the maximum price of the offered shares; a price range (which cannot exceed +/-15% of the mid-range price) must be communicated to the market at least three days before the end of the offering period (it is often included in the prospectus for French IPOs). In the event that the final price is above the price range, it must be published. The offering period must be extended by at least two trading days following publication and prior orders may be cancelled. If the price is set lower than the price range, the price must be published. The offering can proceed (if such possibility was disclosed in the prospectus) unless the other characteristics of the offering are significantly modified. In case of any such significant modification, an additional securities note must be submitted to the AMF for approval. Listing of the shares Upon initially listing a company’s shares on Euronext Paris, Euronext will include it in one of the three capitalisation segments: Segment A (more than €1bn); Segment B (between €150m and €1bn); or Segment C (below €150m). Once a year, the composition of the capitalisation segments is modified by taking into consideration the average market capitalisation of public companies calculated during the last 60 days of trading of the previous year. Listing of the shares will generally occur immediately following pricing (i.e. the next day), on a “when issued” basis until the closing (two days after pricing).

Regulatory architecture: Overview of the regulators and key regulations AMF and Euronext In its capacity as the French financial markets supervisor, the AMF safeguards investments, ensures orderly markets and makes sure that markets receive material information; as such,

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling LLP France it exerts significant control over an IPO process, in particular with regard to the information contained in the prospectus: it will thoroughly review it and exchange comments with the working group throughout the process, including on legal and accounting matters, until final approval. Euronext, as the French market operator, approves the admission of the company’s shares on the market it operates. It will review the legal and financial documentation prepared for the IPO, the company business plan, and may require additional conditions (e.g. market capitalisation, shareholders’ equity and/or lock-ups). Legal documentation The prospectus (which, as is generally the case in France, can be split into three documents: a registration document containing information on the company; the securities note describing the shares offered to the public; and a summary) must be filed with the AMF for approval. The AMF has 20 trading days following the receipt of a complete dossier to review the prospectus; however, in practice, the delay can be longer. The prospectus must be made available to the public at least six working days before the end of the offer (Prospectus Regulation, Article 21.1). However, when the prospectus is split into three documents, the registration document must be published earlier, shortly after its approval (see above, “The IPO process: Steps, timing and parties and market practice” paragraph “Research report”). The format of the prospectus is set forth by European regulations.2 This prospectus may be drafted in English;3 however, the prospectus summary must be drafted in French. The Prospectus Regulation requires a prospectus to be written in a concise and comprehensible form that is easy to analyse and must contain the necessary information which is material to an investor in making an informed assessment of the financial position, etc. of the issuer, the rights attaching to the securities being offered and the reasons for the issue and impact on the issuer. Moreover, the prospectus summary must be short (seven pages maximum, or 10 under specific circumstances) and must include no more than 15 risk factors. The AMF General Regulation requires the bank(s) or listing sponsor to issue an attestation (addressed to the AMF) certifying that they have conducted customary due diligence in accordance with the professional code established by the FBF and the AFEI,4 and that the prospectus does not contain any inaccuracies or omissions which could mislead investors. It also requires the company’s statutory auditors to (i) issue a report on pro forma information, and (ii) review other information in the prospectus and issue a completion letter (“lettre de fin de travaux”, addressed to the AMF) regarding the financial and accounting disclosures, with their observations, if any. The company CEO must sign a statement that the information contained in the prospectus is true and accurate, and that also includes any observations made by the auditors in their completion letter. These requirements only apply to the prospectus for the public offering and listing of the offered shares, as approved by the AMF. Previously, the company’s statutory auditors were also required to issue a report on the issuer’s profit forecasting and estimating. The Prospectus Regulation removed such a requirement. Despite this removal, auditors in recent French IPOs have ended up delivering such a report on a contractual basis for due diligence purposes (as in the IPOs of Verallia and FDJ). With respect to the international offering memorandum used for the international private placement of shares (which is not subject to AMF review or approval), the auditors will be asked to issue a comfort letter, and the law firms advising the company and the underwriters will be asked to issue legal opinions and disclosure “10b-5 like” opinions, for the benefit of the underwriters, in accordance with international market practice.

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ESMA guidance Other ESMA documents that are relevant to understanding the requirements of the prospectus regime include ESMA’s Prospectus Directive Q&A (to the extent it remains applicable to the new regime), ESMA’s Q&A on the Prospectus Regulation, ESMA’s Guidelines on Risk Factors under the Prospectus Regulation and, when finalised, ESMA’s Guidelines on disclosure requirements under the Prospectus Regulation. ESMA’s previously issued guidelines with respect to alternative performance measures may also be relevant. Risk factors Concerning the chapter dedicated to risk factors, Article 16 of the Prospectus Regulation mentions the following three characteristics: • Specific: Only risks that are specific to the issuer and/or the securities and which are important for taking an investment decision should be included in the prospectus. • Corroborated: Risk factors should be corroborated by the content of the registration document and the prospectus. • Important: • The importance of each risk factor is assessed according to the probability that it will materialise and the estimated extent of its negative impact. • The description of each risk factor should be appropriate, explaining in what way the risk factor affects the issuer or the securities. • The description of all the risk factors is covered by a limited number of categories depending on their nature. In each category (and sub-category), the most important risk factors are mentioned first. • Moreover, ESMA’s objective is that the maximum number of categories and sub- categories in the prospectus should be 10 and the total number of risk factors in the abstract cannot be more than 15 (Article 7 of the Prospectus Regulation). The issuer must therefore be attentive to the links between this requirement of 15 risk factors at most in the abstract and the requirement of 10 categories and sub- categories of risk factors at most in the body of the prospectus. On 1 October 2019, ESMA published on its website guidelines for national authorities on the inclusion of risk factors in issuers’ prospectuses. The AMF stated that these guidelines would apply as of 4 December 2019. General overview The legal framework of European markets and other trading platforms, permanent and periodic disclosure obligations and rules and sanctions applicable to market abuses, are regulated at EU level. The Prospectus Regulation further standardises the rules applicable to prospectus content and format. The main statutory French law provisions are divided into two different codes: the French Commercial Code (“FCC”), governing essentially the corporate aspects of French public companies; and the French Monetary and Financial Code (“FMFC”), which sets forth the principles of securities and exchange law. Other aspects, pertaining notably to the offering process and reporting obligations, are set forth by the General Regulation of the AMF. The Euronext Harmonised Rules (applicable across all regulated markets managed by the Euronext Group) and the specific Euronext Rules for Euronext Paris contain the listing requirements and rules. Furthermore, French listed companies are legally required to adopt their own corporate governance code5 and, as a matter of practice, adopt the AFEP-MEDEF code of best practice standards aimed at improving the quality of a company’s board leadership, effectiveness,

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling LLP France accountability, remuneration process and investor relations. French listed companies must set out in their annual report, or in the report on corporate governance annexed to it, any of the corporate governance code’s recommendations that they have not applied and their reasons for not doing so (“comply or explain” principle). The AFEP-MEDEF code includes the need to have independent directors, an audit committee (mandatory) and, as a matter of best practice, a remuneration and a nomination committee. Overview of listing requirements The company intending to publicly list its shares must be either a joint-stock company (société anonyme or “SA”), a limited joint-stock partnership (société en commandite par actions or “SCA”),6 or a European joint-stock company (société européenne or “SE”).7 An SCA is managed by one or several partners who are indefinitely liable for the company’s debts and can only be replaced with their approval (they can be natural persons or legal entities); other shareholders have rights similar to those of an SA. SEs can operate throughout the EU without having to set up a subsidiary in a specific Member State, and can easily move their registered office within the EU; they otherwise follow most rules applicable to SAs. Furthermore, the company’s articles of association must be modified to comply with all the requirements applicable to listed companies (e.g. removing all provisions restricting transfer of shares). The Euronext Harmonised Rules require that, at the time of admission to trading, a sufficient number of securities must be distributed to the public (i.e. at least 25% or such lower percentage determined by Euronext (in any event, not lower than 5%, representing a value of at least €5m)). In order to be listed on the Euronext regulated market, companies must provide three years of IFRS audited financial statements as well as the most recent reviewed half-yearly accounts if admission is sought more than nine months after close, in accordance with the Prospectus Regulation. From a marketing standpoint, financial information on the most recent quarter will also be required. Restrictions on communication Communication pre-IPO is restricted: material information on the company may only be disclosed to persons bound by confidentiality obligations prior to the publication of the registration document, and information on the transaction itself (and in particular, the price and the name of the banks) should not be made public prior to the approval of the AMF on the prospectus, as it could be viewed as a public offering of securities prior to prospectus approval. Furthermore, any other information on the company should be carefully reviewed prior to any publication or disclosure, since the AMF may request its inclusion in the prospectus and the company will incur prospectus liability on any such information. Promotional documentation relating to the offering, irrespective of form and distribution method (e.g. press inserts, leaflets, mailshots, internet banners), must be provided to the AMF before being distributed. Any such documentation must mention the existence of an AMF-approved prospectus and their content must be consistent with the information in the prospectus. Considerations for foreign issuers • Fast Path procedure for US FPIs In specific circumstances, Foreign Private Issuers (“FPIs”) that are publicly traded on the New York Stock Exchange (“NYSE”) can benefit from a simplified listing procedure, called the “Fast Path” procedure, which is currently reserved only for secondary listings or private placements.8

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This procedure was originally designed to allow FPIs to enter the European market by publicly trading their shares on Euronext Paris and thereby build a shareholders’ base in Europe. The listing process is straightforward, fast and cost-efficient. The prospectus filed with the AMF is primarily composed of the documentation already filed with the Securities and Exchange Commission (“SEC”), accompanied by a prospectus summary. The filing procedure may be carried out entirely in English and the overall process can take between five to six weeks. The Fast Path procedure is dedicated not only to US incorporated companies, but to all companies whose shares (either their common stock or American Depositary Receipts (“ADRs”)) are listed on the NYSE. • Professional Compartment In 2007, Euronext created a specialised market segment called the “Professional Compartment” intended for direct listings or private placements to qualified investors (e.g. without public offering). Listing formalities and disclosure obligations are simplified. The Professional Compartment has been used by FPIs for double listings on Euronext Paris via the Fast Path procedure. It has also been used to list special purpose acquisition vehicles (“SPACs”) created for leveraged buy-outs (e.g. Mediawan). Access is, however, limited to qualified investors and other investors to the extent they have been duly informed of the characteristics of this market by their financial intermediaries.

Public company responsibilities Obligations for the company and its managers Inside information disclosure Issuers are required by European regulations9 to immediately publish any inside information and may only postpone publication if: (i) immediate communication is likely to prejudice the legitimate interests of the issuer; (ii) the delay of publication is not likely to mislead the public; and (iii) the issuer is able to ensure the confidentiality of that information. In case of delay, issuers must maintain and update a list of all persons having access to such inside information (“insiders’ list”). In France, the AMF supervises this process. Periodic disclosure obligations Within four months following the end of the fiscal year, issuers are required to make available to the public the annual accounts, the management report, the audit report and the statements of responsibility from the persons responsible with the issuer. The Prospectus Regulation introduced the Universal Registration Document (“URD”), which is largely based on the French “Document de référence”. The URD replaces the Document de référence. Since 21 July 2019, only a URD complying with the Prospectus Regulation may be submitted to or registered with the AMF. Frequent issuers whose securities are admitted to trading on regulated markets or MTFs have the option to draw up and publish a URD every financial year. The URD provides legal, business, financial and accounting information to investors, including the annual description of the company, shareholding information, some extra financial information and risk factors. The URD allows regular issuers to benefit from a five-day fast-track procedure if they integrate it into the prospectus, meaning that the issuer has only to prepare the securities note and the summary. Within three months after the end of the first half of the fiscal year, issuers are required to publish their audited accounts for the first half of the fiscal year, a half-year activity report, the audit report for this period, and the statements of responsibility from the persons responsible with the issuer.

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As the case may be, the company must inform the AMF if it decides to apply or cease to apply certain provisions of its articles of association applicable during a public offer period (e.g. restrictions to the transfer of shares) or to implement a share buyback programme (publication of the description of this programme and seven-day/monthly reporting to the AMF on the transactions relating to such programme). Companies are also required to publish, on a monthly basis, the total number of voting rights and shares making up their share capital (to the extent these numbers have changed since the last publication). Manager’s transactions Pursuant to Market Abuse Regulation (“MAR”), persons discharging managerial responsibilities10 (“PDMR”) and persons related to them must report to the AMF any transaction they have carried out on such company’s securities, no later than three business days following the execution of said transaction. This declaration is not necessary when the aggregate value of said transaction does not exceed €20,000 in the course of an ongoing fiscal year. Closed periods Pursuant to MAR, PDMR may not directly or indirectly engage, on his/her own behalf or on behalf of third parties, in any securities transactions during a closed period of 30 calendar days prior to the publication of the annual or half-year financial statements. Based on AMF recommendations, public companies can (and most do) extend these closed periods to: (i) persons having routine or occasional access to inside information; and (ii) a 15-calendar-day period preceding the publication of quarterly financial information. Parity within boards of directors and supervisory boards Boards of directors or supervisory boards of French listed companies must be composed of at least 40% of each gender. Not complying with this rule may result in monetary sanctions, the temporary suspension of the fees allocated to directors and the nullity of appointments made by such boards. Say-on-pay Remuneration of senior executives of French listed companies (and in particular, the CEO if he/she is also chairman of the board) is subject to increasingly strict rules and recommendations. The AFEP-MEDEF code contains a number of recommendations on the criteria to be used. Each annual shareholders’ meeting must approve ex ante the principles and criteria of its remuneration, and also ex post the amounts paid with respect to the previous fiscal year. French law n° 2019-486 dated 22 May 2019, known as loi Pacte (“Pacte Law”) has authorised the government to transpose EU Directive 2017/828 of 17 May 2017, amending Directive 2007/36. This Directive has been transposed by ordonnance 2019-1234 dated 27 November 2019 relating to the remuneration of the executive officers of listed companies. This ordonnance describes all of the new requirements regarding say- on-pay resolutions. Obligations for shareholders Capital and crossing voting rights thresholds Shareholders, acting individually or by way of concerted action, crossing upwards or downwards 5%, 10%, 15%, 20%, 25%, 30%, one-third, 50%, two-thirds, 90% and 95% of a French listed company’s capital or voting rights, must inform the company of such crossing, as well as the AMF, which will disclose the information to the public.

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Non-compliance with these statutory requirements may result in: the shares exceeding the relevant threshold being deprived of voting rights; administrative sanctions by the AMF of up to €100m; and criminal fines of €18,000 for the defaulting individuals (as well as the CEOs and directors of a defaulting company) and €90,000 for the company. The companies’ articles of association may provide for even lower declarative thresholds, which can go down to 0.5% of the issuers’ capital or voting rights. Upon crossing the 10%, 15%, 20% or 25% thresholds, the shareholders are legally required to publicly declare their objectives to the issuer and to the AMF for the six-month period following the crossing. For the computation of such thresholds, all financial instruments or agreements giving access to existing share capital or voting rights (even those which are cash-settled) must be aggregated to shares and voting rights already held. Mandatory takeover bid Any shareholder of a French listed company that crosses, individually or by way of concerted action, 30% of the issuers’ capital or voting rights, is legally required to declare a tender offer on 100% of the shares of the company. The same obligation applies to shareholders holding individually or jointly between 30% and 50% of the issuers’ capital or voting rights and who acquire at least 1% during the 12 months preceding the threshold crossing. Withdrawal offers and squeeze-out procedure Where a shareholder or group of shareholders acting in concert holds at least 90% of the capital or the voting rights of a French listed company, it may make a withdrawal offer for the remaining shares (“offre publique de retrait”) and a minority shareholder may request such withdrawal offer to be carried out. In addition, when a bidder owns 90% of the shares and voting rights of a French public company after completing any public tender offer, it may secure the compulsory and automatic transfer of minority shareholdings through a squeeze-out mechanism (“retrait obligatoire”). In addition, the AMF may request a controlling shareholder who transforms the company into an SCA, decides to make certain significant changes to the company’s articles, merges it with a company that controls it or is under common control, transfers all or substantially all its assets, changes its activity or suppresses dividends for several fiscal years, to launch a withdrawal tender offer. Delisting without squeeze-out procedure As an alternative to the squeeze-out procedure, the AMF recently approved an additional delisting procedure available to bidders holding more than 90% of the voting rights of the company, following a simplified public tender offer, subject in particular to the low liquidity of the company’s shares. However, the bidder remains subject to certain requirements following the delisting and this new mechanism does not replace the squeeze-out procedure, as it does not allow the controlling shareholder to force the minority shareholders out of the company. In practice, delisting decisions are rare outside the context of a squeeze-out. Statement of intent following rumours of a takeover bid (“put up or shut up”) The AMF may require, from any person whom it reasonably believes to be preparing a takeover bid (for instance, where the AMF observes significant and unusual variations in the price or trading volume of a company’s shares), to publicly disclose their intentions within a given timeframe set by the AMF. If the individual discloses that they intend to file a tender offer, the AMF will set a date by which the tender offer must be filed or publish a

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling LLP France press release outlining the terms of the proposed tender offer. If the individual states that they do not intend to file an offer, they are prevented from filing an offer on the issuer during a six-month period from the time of the statement, unless evidence is provided affirming that major changes in the environment, situation or shareholding structure of the entity concerned, including the issuer itself, have occurred. Disclosure of shareholders’ agreements Shareholders are required to disclose to the AMF, which will publish such disclosure, any clause of an agreement providing for preferred terms for buying or selling shares admitted to trading on Euronext Paris and covering at least 0.5% of the floating capital or voting rights of the company.11 Disclosure of the preparation of a financial transaction Any person preparing, for their own account, a financial transaction likely to have a significant impact on the price of the company’s securities, or on the financial position and rights of holders of such securities, must disclose the characteristics of the transaction to the public as soon as possible. However, if confidentiality is temporarily necessary to implement the transaction and if the person is able to ensure confidentiality, they may do so and assume responsibility for deferring disclosure of those characteristics. Rules applicable to foreign issuers The above requirements generally apply to non-French issuers, including periodic and ongoing disclosure obligations, except for French law provisions which only apply to French companies, such as disclosure of ownership thresholds, mandatory takeover bids, squeeze- out, or provisions which only apply to EU companies such as the obligation to inform the AMF of specific amendments to the company’s articles of association. Non-French companies, listed or seeking to be listed on Euronext Paris, can prepare their IFRS financial statements in a currency other than the euro e.g.( US$). Insider trading Pursuant to MAR, any person who uses inside information to trade listed securities, or unlawfully communicates inside information to third parties, incurs sanctions from the AMF (penalty of up to €100m or 10 times the profits realised) or criminal penalties from criminal courts (a fine and/or imprisonment).

Potential risks, liabilities and pitfalls AMF approval does not constitute an endorsement of the merits of the offering or the authenticity of the accounting and financial documents presented. The prospectus is prepared by the issuer and its signatories, which incur liability in respect thereof. Sanctions by the AMF The AMF may sanction the company’s authorised representatives, the statutory auditors or the listing banks, for any violation of its General Regulation or European Regulations which fall under its competence, to a monetary penalty of up to €100m or up to 15% of the annual turnover of the company. In particular, their liability will be sought on the basis of misleading or inaccurate information contained in the prospectus, and more generally in any communication. Civil liability The CEO and directors are responsible, individually and separately, as the case may be, for any breach of applicable laws or regulations or the company’s articles of association, or any fault in managing the company. Third parties may sue the company, in particular when a

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling LLP France director or the CEO have committed a fault which causes a prejudice to the company; the company may in turn exercise recourse against the defaulting director(s) or CEO, such recourse being made by the company itself or at the request of its shareholders. Third parties may directly sue the director(s) or the CEO if: (i) the fault of the director(s) or CEO which causes a prejudice to the company is intentional, serious and falls outside the scope of the normal duties of the directors or CEO; or (ii) the fault causes a prejudice directly to the third party, which is distinct from a prejudice to the company.

Outlook and conclusion In the last few years, there has been a steady trend towards rendering the French market increasingly attractive for domestic and international companies; market operators show optimism with regard to the IPOs announced for 2020 once the health crisis is over. Important legislative reforms have been adopted with a view to encouraging more companies to go public on Euronext Paris (e.g. reduction of the delisting and squeeze-out threshold from 95% to 90% of the floating share capital and voting rights). The recent Pacte Law enables French companies to directly list their shares in certain markets outside the EU, such as the NYSE, NASDAQ or HKSE (the first company to have used this possibility is Constellium SE, whose shares are directly listed on the NYSE without ADRs).

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Endnotes 1. For companies going public on Euronext Growth, Access or Access+, it is mandatory to appoint a listing sponsor accredited by Euronext in order to increase the investor’s confidence during the listing process. 2. Annex to the Commission Delegated Regulation supplementing the Prospectus Regulation. 3. For example, this possibility has been used in 2018 by GEFCO, Consolis, NAVYA and Autodis. 4. The Code professionnel FBF-AFEI details the customary due diligence (Diligences à opérer par les prestataires de services d’investissement participant à une opération financière). 5. It should be noted that non-French companies listing in France (as well as French companies listing outside of France) are not subject to this requirement. 6. Very few public companies are SCAs; for example, Hermes International or Michelin. 7. For example, LVMH, Wendel, Schneider Electric, Constellium or Dassault Systèmes. 8. Companies that have used this procedure include Coca-Cola Enterprises, Eli Lilly and Company, Infosys and Weatherford International. 9. Regulation (EU) No 596/2014 of 16 April 2014 on market abuse (Market Abuse Regulation or “MAR”). 10. As defined in MAR. 11. Within five trading days from the signature of the agreement or the inclusion of the clause.

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Hervé Letréguilly Tel: +33 1 53 89 71 30 / Email: [email protected] Hervé Letréguilly is a partner in the Paris Corporate practice. Hervé has extensive experience in IPO, public tender offers, public and private M&A, global securities offerings (equity, equity-linked, debt including high yield) and privatisations with a focus on financial products. He also advises on corporate governance and financial regulatory matters. He is ranked as a leading lawyer in all leading directories, including Who’s Who Legal, The Legal 500 EMEA and Chambers & Partners. He has been named Best Lawyers’ “Lawyer of the Year” for 2020 (Capital Markets), 2018 (Securities Law) and 2012 (Capital Markets). Hervé lectures at Université Panthéon-Assas Paris 2 on capital markets. He is the author of numerous publications on corporate and securities laws (including Règlement général de l’AMF, textes et commentaires, Dalloz).

Séverine de La Courtie Tel: +33 1 53 89 81 89 / Email: [email protected] Séverine de La Courtie is counsel in the Paris Corporate practice. Séverine advises on French and international capital markets transactions, on equity and equity-linked securities and debt securities. Her practice and specific experience cover offerings by French and European issuers, including initial public offerings, secondary offerings, institutional and private placements, stock exchange listings, M&A transactions and general corporate matters. She has represented issuers and underwriters in a wide variety of offerings. Séverine was named ‘Best lawyer’ in Securities Law for France in 2020, ranked ‘Next Generation Lawyer’ by The Legal 500 in 2019 and shortlisted for ‘Europe Women in Business Law Awards’ 2019 by IFLR in the category “Rising Star: Finance”.

Shearman & Sterling LLP 7 rue Jacques Bingen, 75017 Paris, France Tel: +33 1 53 89 70 00 / URL: www.shearman.com

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Dr. Martin Steinbach & Dr. Mauritz C. Mann Ernst & Young

Introduction History of IPOs in Germany Despite IPOs having a long tradition in Germany, they only gained traction from the mid- 1990s when the “Neuer Markt” was introduced as a new market segment of the Frankfurt Stock Exchange (Frankfurter Wertpapierbörse, “FSE”) that was primarily targeted at small and medium-sized, innovative “new economy” companies. This development came to a halt when the enormous stock price bubble burst and the Neuer Markt was finally shut down at the end of 2002. Since then, in Germany, more listed companies have chosen to delist their shares than companies implementing an IPO and, consequently, the number of listed companies has declined considerably. This development is attributed, inter alia, to the rise of private equity which offers private companies a financing alternative (without the ongoing costs and additional compliance requirements resulting from a stock exchange listing) and the wide withdrawal of banks and insurance companies from the equities business due to increased capital requirements for this class of assets. Another set-back for IPO activities in the German market was the 2008/2009 financial crisis. However, following a recovery of the economy and the stock markets since then, 2018 was considered to be a record year with total IPO proceeds in excess of EUR 10 billion. The Frankfurt Stock Exchange The FSE is among the largest stock exchanges worldwide and by far the largest of the seven stock exchanges in Germany. Frankfurt is Germany’s financial centre and hosts leading international financial institutions as well as various supervisory authorities including the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, “BaFin”) and the European Central Bank. The FSE is an entity under German public law that is owned and operated by Deutsche Börse AG (together with Börse Frankfurt Zertifikate AG). The six German regional stock exchanges are located in Berlin, Dusseldorf, Hamburg, Hanover, Munich and Stuttgart. Issuers seeking to list their shares on the FSE can choose between the Regulated Market (Regulierter Markt) and the Open Market (Freiverkehr). The Regulated Market is an EU-regulated market within the meaning of the EU Prospectus Regulation 2017/1129 (“Prospectus Regulation”) and the MiFID II (Directive 2014/65/ EU), comprising the two market segments General Standard and Prime Standard. Only companies that are listed in the Prime Standard may be included in one of the FSE’s prominent indices (DAX, MDAX, SDAX and TecDAX), which are weighted by market capitalisation and calculated as both price and total return indices.

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The Open Market is a “regulated unofficial market” as it is only regulated by Deutsche Börse AG’s general terms and conditions. The segments of the Open Market are Quotation Board, Basic Board and Scale. This contribution focuses on the Regulated Market of the FSE in the following, given its importance for large and medium-sized issuers as well as domestic and international investors. The FSE’s two trading venues are Xetra and Börse Frankfurt. Xetra is the reference market for exchange trading in German shares and exchange-traded funds (“ETFs”). More than 85% of all trading in shares at German exchanges is transacted through Xetra. Xetra is a truly international trading venue which is demonstrated by the fact that approximately 50% of its roughly 170 trading participants are located outside of Germany. Börse Frankfurt is primarily targeted at private investors, and the trading of securities is managed by specialists on the trading floor. As of April 2020, a total of 453 companies were listed on the FSE’s Regulated Market, of which approximately 10.6% were issuers with their respective corporate seat in a jurisdiction other than Germany. In particular, a number of foreign real estate companies chose to list their shares on the FSE, such as Corestate Capital Holding S.A., ADO Properties S.A., Grand City Properties S.A. (all Luxembourg) and Aroundtown SA (Cyprus). IPOs in 2019 and outlook In 2019, IPO activity in the German market was significantly dampened due to, among others, the US–Chinese trade dispute, ongoing Brexit uncertainty and a deterioration of the general business climate. In fact, 2019 was the weakest year by numbers for IPOs in Germany since the 2008/2009 financial crisis. This is evidenced by only four initial listings (2018: 18) that totalled gross proceeds of approximately EUR 3.5 billion (2018: approximately EUR 10.4 billion). However, two of these IPOs were still record-breaking: TeamViewer AG’s IPO with gross proceeds of approximately EUR 2 billion was the largest tech IPO in Germany since the bursting of the new economy bubble; and the debut of VW’s truck division TRATON SE with gross proceeds of approximately EUR 1.4 billion was the largest IPO in Europe in the second quarter of 2019. The COVID-19 pandemic and its impact on the global economy have resulted in extreme stock market volatility, making ambitions to go public in 2020 highly uncertain. However, IPO candidates with resilient business models in sectors such as healthcare and technology may still pursue their IPO plans in the second half of 2020. Furthermore, alternative strategies for going public, in particular those that separate the listing of a company’s shares from the raising of capital, are likely to be considered more closely going forward. Other noteworthy trends Equity carve-out and spin-off transactions have become increasingly popular in the German market in recent years. In case of an equity carve-out, a subsidiary is separated from its parent company by selling a portion of its shares to the public by way of an IPO. Typically, the parent company only divests a minority shareholding to remain in control of the subsidiary. Prominent precedents include the separation of fund manager DWS Group GmbH & Co. KGaA from Deutsche Bank AG, the health equipment company Siemens Healthineers AG from Siemens AG (both 2018) and TRATON SE from Volkswagen AG (2019). In contrast, the shareholder structure remains unchanged in case of a spin-off; the shareholders of the parent company receive shares in the subsidiary entity in proportion to their shareholding in the parent company, e.g., the spin-off of energy company Uniper SE from its parent company E.ON SE.

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The German Federal Government – as part of its overall strategy to promote blockchain technology that was presented in September 2019 – intends to publish a draft legislation to regulate the public offering of certain crypto-tokens and to open up German law for electronic securities. In particular, the current requirement for securities to be issued in paper form shall no longer apply unequivocally. Instead, it is contemplated to regulate electronic securities on a technology-neutral basis so that they could also be issued on a blockchain in the future. Whereas the current legislation shall be opened up for electronic bonds first, electronic shares may follow, subject to further assessment. If such “digital” shares were to be admitted to trading on established secondary markets, this could have a significant impact on the role of market participants such as investment banks.

The IPO process: Steps, timing and parties and market practice IPOs are typically complex and time-consuming processes. Therefore, even when the financial climate may not be ideal for raising capital, it could still be a good time for IPO candidates to plan and prepare for an IPO while waiting for markets to settle. Companies that undergo an effective pre-IPO transformation during uncertain times will be best positioned once equity market conditions improve again. The key phases of the IPO process are set out in the following: Phase 1: Strategic considerations and IPO planning phase Ideally, IPO candidates should start evaluating strategic options and perform an IPO readiness assessment 12 to 24 months prior to a contemplated IPO. Alternatives to an IPO may include any combination of the following: • sale to a strategic buyer through the M&A market; • sale to a private equity or venture capital firm; • sale to a family office; and/or • private placement, often as a pre-IPO step. Compared to those potential alternatives, the IPO route will enable access to and leverage of new sources of capital and provide daily price determination as well as a liquid currency (in the form of shares) for acquisitions and compensation. In addition, more entrepreneurial independence will be retained compared with a private market exit. However, the increased costs, transparency and compliance requirements, greater scrutiny by investors and analysts as well as the overall accountability for delivering on promises that a stock market listing brings along should also be taken into account. Furthermore, the capital markets in general and potential IPO windows in particular are unpredictable. Therefore, alternative private and/or public financing strategies should be in place in case the IPO may not take place. During this phase, the IPO candidate should already start assessing potential listing venues and listing segments since these will determine the regulatory requirements that the company will have to meet. Consequently, the IPO candidate’s internal structures (legal, tax and organisational) and functions (management, accounting and financial reporting, and investor relations) should be analysed in this regard. On the basis of such IPO readiness assessment, appropriate internal capital market capabilities should be put in place, including a project team that will steer the IPO process going forward. Phase 2: Preparation of the IPO Once the decision to pursue an IPO has been taken in principle, the following key tasks must be completed during the IPO preparation phase (usually commencing five to seven months prior to the envisaged first day of trading).

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Selection of advisors The IPO candidate’s external advisors are typically mandated following “beauty contests” and have the following tasks in the IPO process: Global coordinators: As the lead underwriting banks, they develop the key equity story and selling messages for the IPO, structure the offer, e.g., the sale of newly created shares (“primary offering”) and/or the sale of existing shares (“secondary offering”), manage the IPO marketing campaign (including the IPO roadshow) and the pricing process, assist with broader investor marketing, conduct the financial due diligence and help to establish a strong and stable market for shares post-IPO. Together with the other bookrunners, which are typically not involved at this stage, they provide the underwriting for the shares to be offered. Auditors: The issuer’s independent auditors verify the financial information that is included in the prospectus and assist with the drafting of certain prospectus sections (in particular, “Management Discussion & Analysis” (“MD&A”) and “Pro Forma Financial Information”, if required), provide guidance regarding certain due diligence issues and issue comfort letters to the underwriters. Issuer’s counsel: They provide the issuer with legal advice on all relevant aspects of the transaction, conduct the legal due diligence process, draft the prospectus and lead the approval process with the regulator, review and negotiate the underwriting agreement, review all publicity related to the transaction, ensure that the issuer’s regulatory requirements are fulfilled at the time of the listing and issue legal opinions and disclosure letters to the underwriters. Underwriters’ counsel: They provide the investment banks mandated by the issuer with legal advice in relation to the transaction, conduct the legal due diligence on behalf of the underwriters, review and provide comments on the prospectus drafts, prepare and negotiate the underwriting agreement, review publicity and research reports and issue legal opinions and disclosure letters to the underwriters. Further advisors: Frequently, issuers involve external public relations agencies specialising in financial communications that may also help to establish or improve internal structures for the issuer’s investor relations activities. In some cases, external IPO advisors are mandated early in the process in order to coordinate the different workstreams, assist with the selection of the other advisors and provide independent advice to the issuer. Corporate law measures The corporate law measures that need to be implemented with the support of the issuer’s counsel prior to the stock exchange listing largely depend on the specific circumstances. In some cases, they may involve demerger and contribution processes or even extensive restructuring measures. In particular, it is usually necessary to change the issuer’s legal form, e.g., from a German limited liability company (“GmbH”) or a limited partnership (“KG”) into a stock corporation (“AG”), European Company (“SE”) or partnership limited by shares (“KGaA”). However, it should be noted that the shares of foreign issuers are also eligible for a listing on the FSE. Whether or not a foreign legal form is acceptable primarily depends on the targeted investor base. The issuer’s articles of association and general corporate governance should be in line with capital market expectations. Therefore, amendments frequently have to be made to the articles of association or the rules of procedure for the management board and the supervisory board, also to comply with the recommendations of the German Corporate Governance Code (Deutscher Corporate Governance Kodex, “DCGK”). Furthermore, the statutory minimum share capital (AG/KGaA: EUR 50,000; SE: EUR 120,000) will usually

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Ernst & Young Germany not suffice to generate the number of shares at the recommended issue price to reach the targeted market capitalisation. In such cases, capital increases (e.g., from capital reserves or by way of contributing shareholder loans) need to be implemented, typically prior to the change of legal form. The articles of association should also provide for sufficient authorised and conditional capital in order to enable the company to issue additional shares (within the statutory limits) following the listing without having to obtain the general shareholders’ meeting’s consent first. Furthermore, at the time of listing, domestic issuers must comply with the specific requirements for listed companies set forth by the German Stock Corporation Act (Aktiengesetz, “AktG”). Equity story The issuer’s IPO valuation is typically driven by the following factors: market conditions; investor confidence in the issuer’s management team; and the issuer’s equity story. Investors will scrutinise the issuer and its bottom-line performance much more closely than before. They look for companies with business models that performed well, hold a solid track record and have an actionable plan to sustain growth. Therefore, the development of a compelling equity story is one of the key tasks in the IPO process. Key elements of the equity story are the issuer’s strengths and strategy, management team, market position and competitors. The equity story must be supported by historical financial information, demonstrating the trends underpinning the equity story and building a bridge to the management’s business plan. At the time the equity story is established, the issuer should also decide which key performance indicators (“KPIs”) to measure and monitor. These decisions should be reflected in the issuer’s financial reporting in annual and interim accounts, as well as in its presentations and other communications to the market. Financial statements In general, the prospectus must include the issuer’s audited historical financial information for the last three financial years which must be prepared in accordance with the EU-adopted International Financial Reporting Standards (“IFRS”) and International Accounting Standards (“IAS”). In case of non-EU issuers, the generally accepted accounting principles (“GAAP”) of the United States, Canada, Japan, China and South Korea are deemed to be equivalent to IFRS. IPO candidates must ensure that appropriate accounting and controlling functions are in place and adapt their financial reporting processes and related IT systems accordingly in order to meet the ongoing financial reporting requirements that apply following the listing. Due diligence The financial and legal due diligence process is one of the key elements of the IPO preparation. As part of it, the global coordinators, the underwriters’ counsel and the issuer’s counsel examine the issuer’s capital markets readiness. The due diligence is targeted at finding material risks which could cause damage to the issuer’s reputation and, as a consequence, the underwriters’, given their involvement in the IPO and the sale of the issuer’s shares. Having conducted a customary due diligence exercise may also provide the underwriters with a defence to reject allegations of gross negligence in a possible prospectus liability lawsuit. Prospectus The securities prospectus is the central document of the IPO transaction. Throughout the EU, the offering of securities to the public or the admission of securities to trading on a regulated market requires the publication of an approved prospectus, subject only to certain exemptions. At the same time, the prospectus serves marketing purposes. These potentially diverging objectives must be carefully analysed and resolved in accordance with statutory disclosure requirements in order to avoid prospectus liability risks.

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Structure and content of the prospectus are widely harmonised by EU law, in particular by the Prospectus Regulation and the regulation and recommendations issued in connection therewith (see “Regulatory architecture: Overview of the regulators and key regulations – Regulators – Legal framework for prospectuses” below). Prior to the first filing of the prospectus with the regulator, the issuer’s counsel will prepare a first prospectus draft together with the issuer and its auditors, which will then be reviewed and commented on by the underwriter’s counsel and the global coordinators. The statutory period as well as the requirements for the approval process are set out in Art. 20 Prospectus Regulation. Accordingly, an IPO prospectus must be approved within 20 working days. However, the BaFin approval process usually takes between six to eight weeks from the initial filing of the prospectus draft, depending,inter alia, on the complexity of the transaction and the information to be included in the prospectus. The approval process typically involves three filings followed by BaFin comments and the final filing for prospectus approval. Engagement letter and underwriting agreement The global coordinators are mandated on the basis of an engagement letter which sets out key provisions governing the services to be performed, confidentiality and, as the case may be, break-up fees, reimbursements and liability. Whereas the engagement letter does not obligate the banks to underwrite and place the issuer’s shares, it may predetermine certain provisions of the underwriting agreement which will only be executed at a later stage. The underwriting agreement is entered into between the underwriters, the issuer and, as the case may be, the selling shareholder(s). The underwriting agreement contains the key terms for the underwriting and placement of the issuer’s shares (typically a maximum number of shares on a “best efforts” basis, i.e., no placement guarantee is given by the underwriters), the liability of the issuer and the underwriters as well as the underwriters’ fees, commissions and costs. As a rule, the underwriting agreement is executed only shortly prior to the publication of the prospectus and the beginning of the offer period. Other customary documentation In addition to the prospectus and the underwriting agreement as the key legal documents, the other customary IPO documentation corresponds to international market standards and includes the following: resolutions by the issuer’s management board and, as the case may be, approvals by the supervisory board; publicity and research guidelines; the pricing agreement; agreement among managers (governing the underwriters’ internal relationship); lock-up agreement; cost-sharing and indemnification agreement (between the issuer and the selling shareholder(s)); listing agreement; certificates issued by the issuer’s management (typically, the CFO); and the global share certificates. Phase 3: (Pre-)Marketing and offering Already at an early stage of the IPO process, selected investors may be contacted in some cases to gauge investor interest (“pilot fishing” or “early-look” presentations). If material information is disclosed to investors prior to prospectus publication, it must also be included in the prospectus (see Art. 22 para. 4 Prospectus Regulation). Typically, around two months prior to the envisaged first day of trading, the underwriters inform their analysts about the contemplated IPO, followed by an analyst presentation held by the issuer’s management. On this basis, the analysts will prepare research reports to be made available to institutional investors. Approximately four weeks prior to the envisaged first day of trading, the issuer publishes the “intention to float” (“ITF”), notifying the public about its IPO plans, and the research reports are circulated to potential institutional investors to provide price indications on this basis as part of the pre-marketing. The recommendations given in the research reports may not be disclosed to the issuer, however.

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On the approval date, the prospectus is published, a press conference is held, and the offer period commences. Usually shortly prior to prospectus publication, the underwriting agreement is executed, with legal opinions, disclosure letters and comfort letters to be issued on the approval date and on the settlement date. In many cases, the prospectus will include a price range for the issuer’s shares and the offer price is determined by way of a bookbuilding process. During the bookbuilding period, the issuer’s management is on roadshow for around two weeks to market the shares to potential investors. In case of a “decoupled bookbuilding”, the prospectus does not include a pricing range and the offer period is significantly shorter. At the end of the offer period, a separate pricing agreement is entered into among the issuer, the underwriters and/or the selling shareholder(s) (if any) should the offer price not be determined in the underwriting agreement, and the shares are allocated to investors following prior consultation between the aforementioned. Phase 4: Listing, settlement and stabilisation The admission to trading on the Regulated Market requires the issuer to file a listing application with the FSE in accordance with the statutory requirements (see “Regulatory architecture: Overview of the regulators and key regulations – Regulators – Listing” below). Whereas the statutory period for the granting of the admission to trading is one business day, in practice, the listing process often requires between three business days up to one week. Therefore, issuers and their counsels should reach out to the FSE early in the process and ideally pre-agree the details of the listing application. On the business day following the granting of the admission to trading and its publication, the shares will then be officially listed on the Regulated Market of the FSE. The right of the issuer’s shareholders to receive share certificates must be excluded in the issuer’s articles of association. Instead, global share certificates are executed and, in case of a German issuer, delivered to Clearstream Banking AG, Frankfurt am Main. Following the listing, settlement occurs by way of book-entry delivery of the issuer’s shares (and, regarding shares sold, against payment of the purchase price) within two or three business days. In order to avoid high volatility in the issuer’s shares, one of the underwriters acts as stabilisation manager and may, acting in accordance with the EU Market Abuse Regulation No. 596/2014 (“MAR”) and the regulatory technical standards issued, make overallotments and take stabilisation measures to support the market price of the issuer’s shares and thereby counteract any selling pressure. The stabilisation period commences on the first day of trading and ends 30 days thereafter at the latest.

Regulatory architecture: Overview of the regulators and key regulations Regulators BaFin is the competent regulator for securities supervision in Germany. As such, it reviews and approves prospectuses of issuers with their registered office in Germany. In case the issuer has its registered office in another EU/EEA Member State, the financial supervisory authority of such home Member State is the competent regulator. However, BaFin must accept a prospectus that is approved by such foreign regulator – and, consequently, such prospectus may be used for a public offering or stock exchange listing in Germany – if it is “passported” into Germany. This requires the foreign regulator, at the issuer’s request, to notify both BaFin and the European Securities and Markets Authority (“ESMA”) within one working day following approval and to submit an electronic prospectus copy.

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The scope of BaFin’s prospectus review is limited to checking the completeness, consistency and clarity of the prospectus. BaFin does not verify the accuracy of the information included in the prospectus. However, it may require the issuer to include additional information if considered necessary for protecting investors. The FSE is the competent authority for granting admission to trading on the Regulated Market. However, like any other stock exchange in Germany, it has no mandate to challenge or reject a prospectus that was approved by BaFin or another EU/EEA regulator. Legal framework for prospectuses The law governing securities prospectuses is widely harmonised throughout the EU by the Prospectus Regulation as well as the Commission Delegated Regulation (EU) 2019/979 and the Commission Delegated Regulation (EU) 2019/980 (the “Delegated Regulations”), all of which are directly applicable. In addition, ESMA’s “Guidelines on risk factors under the Prospectus Regulation” and “Questions and Answers on the Prospectus Regulation” should also be considered, together with ESMA’s previous guidance relating to the EU Prospectus Directive 2003/71/EC (to the extent it is compatible with the Prospectus Regulation). Furthermore, the German Securities Prospectus Act (Wertpapierprospektgesetz, “WpPG”) sets out, inter alia, provisions regarding prospectus liability and sanctions in case of violations. In general, prospectuses must contain the necessary information that is material to an investor for making an informed assessment of (i) the issuer’s assets and liabilities, profits and losses, financial position and prospects of the issuer, (ii) the rights attaching tothe securities, and (iii) the reasons for the issuance and its impact on the issuer. The information in the prospectus shall be presented in an easily analysable, concise and comprehensible form. The information that is required to be included in a prospectus is defined in more detail by the Prospectus Regulation and the Delegated Regulations. Prospectuses may be drawn up in English but must include a German translation of the prospectus summary. Listing The requirements for a listing on the Regulated Market of the FSE are set out in the German Stock Exchange Act (Börsengesetz, “BörsG”), the German Stock Exchange Listing Regulation (Börsenzulassungsverordnung) and the FSE’s Exchange Rules (Börsenordnung). The issuer must file the application for the admission to trading together with a credit or financial institution or another enterprise operating within the meaning of Sections 53 para. 1 sentence 1 or 53b para. 1 sentence 1 German Banking Act (Kreditwesengesetz) that fulfills the requirements set forth in Section 32 para. 2 BörsG. The application must be accompanied by certain documents comprising, in particular, the approved prospectus. The minimum requirements for an admission to the Regulated Market of the FSE are as follows: (i) the expected market value of the shares to be admitted must amount to EUR 1.25 million at least; (ii) the issuer must have been in legal existence for a minimum of three years (exceptions may be granted); (iii) the shares must be freely tradable; and (iv) a minimum free float of 25% following admission must be secured (subject to certain exceptions; however, there must be at least 100 individual shareholders). The application of issuers seeking admission to the Prime Standard sub-segment of the Regulated Market must be granted if the FSE’s management board is not aware of any circumstances which could impair the issuer’s ability to comply with the additional obligations arising from the admission to the Prime Standard in an orderly manner.

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Public company responsibilities Following the listing on the Regulated Market of the FSE, issuers are subject to a variety of post-admission obligations, in particular the following: MAR The MAR comprises the EU harmonised regulation of, inter alia, inside information and ad hoc notifications (i.e., the disclosure of material non-public information that is expected to have a significant effect on the share price), insider trading and managers’ transactions as well as market manipulation. It is applicable once the admission to trading on the Regulated Market has been requested by the issuer (i.e., already prior to the admission to trading) and supplemented by the German Securities Trading Act (Wertpapierhandelsgesetz, “WpHG”) and the German Securities Trading Reporting and Insider List Regulation (Wertpapierhandelsanzeige- und Insiderverzeichnisverordnung). WpHG If shareholder voting rights (directly or indirectly) reach, exceed or fall below the statutory thresholds of 3, 5, 10, 15, 20, 25, 30, 50 or 75%, the respective shareholder must inform both the issuer and BaFin immediately and within four trading days at the latest (see Sections 33 et seq. WpHG). Furthermore, domestic issuers are required to publish annual and semi- annual financial reports (see Sections 114 et seq. WpHG). Prime Standard Issuers whose shares are listed in the Prime Standard must comply, inter alia, with the following additional post-admission obligations: (i) submission of quarterly financial statements within two months from the end of the reporting period; (ii) hold at least one analyst conference per year; (iii) continuous updating and publication of a financial calendar; and (iv) all post-admission obligations must be fulfilled in both German and English. Other laws Section 161 AktG requires domestic issuers to publish a declaration of compliance with the corporate governance recommendations set forth by the DCGK. Furthermore, in addition to the various provisions under the AktG that apply for listed companies, the German Commercial Code (Handelsgesetzbuch) sets forth specific requirements for the financial reporting of listed companies.

Potential risks, liabilities and pitfalls Prospectus liability To avoid prospectus liability claims, the information included in the prospectus must be correct and complete. If any material information is incorrect or incomplete, the purchasers of shares can demand, under certain conditions, to be reimbursed the purchase price in exchange for any shares acquired. Prospectus liability attaches to those who have assumed responsibility for the prospectus (i.e., those who are included in the responsibility statement in the prospectus) or who have initiated the preparation of the prospectus (see Section 9 para. 1 sentence 1 no. 1 and 2 WpPG). The latter refers to persons with own commercial interests in relation to the offering who have significant influence on the preparation of the prospectus. Consequently, selling shareholders such as private equity investors should carefully consider their involvement in the prospectus drafting process. Cost-sharing and indemnification agreements, IPO insurances In its “Telekom III” decision of 31 May 2011, the German Federal Court (“BGH”) ruled the following: The assumption by the issuer of the prospectus liability risk vis-à-vis the

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Ernst & Young Germany underwriters in connection with a secondary offering of existing shares from the holdings of shareholders constitutes an illegal distribution of share capital to such shareholders (see Section 57 para. 1 sentence 1 AktG), unless they indemnify the issuer from any prospectus liability. Similarly, it would be in violation of this principle if the issuer bore the IPO costs in such case. Therefore, it is customary that the issuer and the selling shareholder(s) enter into cost-sharing and indemnification agreements. However, it is the majority view in legal literature and among practitioners that the BGH’s ruling does not apply to a pure primary offering, in particular since only the issuer receives the proceeds from the sale of the newly issued shares. In case of a combined (i.e., primary and secondary) offering, the IPO costs must be shared pro rata between the issuer and the selling shareholder(s), and the latter must assume the prospectus liability risk accordingly. Alternatively, instead of entering into a cost-sharing and indemnification agreement, the issuer’s prospectus liability risk can be insured through the purchase of a “Public Offering of Securities Insurance” (“POSI”) for which the selling shareholder pays the premium. Comfort letter and auditors’ liability The issuer’s auditors are requested to issue comfort letters to the underwriters regarding the accuracy of the financial information in the prospectus. The comfort letters must be issued in accordance with the “IDW PS 910” standard set forth by the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer in Deutschland). Accordingly, the auditors may only give negative assurances in relation to changes in items included in the issuer’s financial statements if the period between the last audited or reviewed financial statements and the cut-off date for the comfort letter is no longer than 134 days. In Germany, the liability of auditors vis-à-vis the underwriters is limited by their general terms and conditions to EUR 4 or 5 million, respectively, per individual claim. Therefore, the underwriters frequently seek to agree higher liability amounts with the auditors.

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Dr. Martin Steinbach Tel: +49 6196 996 11574 / Email: [email protected] Martin is Partner at EY. He is the EMEIA IPO Leader and Head of IPO and Listing Services for Germany, Switzerland and Austria. His concentrations include IPOs, investor relations mergers and acquisitions, and private equity deals. He has more than 25 years of experience working on over 250 transactions in corporate finance in Europe, China, Russia and India. Before joining EY in 2011, Martin held management positions in investment banking, private equity, IT and the stock exchange sector. He has served on the supervisory boards of companies and investment committees of private equity firms.

Dr. Mauritz C. Mann Tel: +49 6214 208 25024 / Email: [email protected] Mauritz is a Senior Manager at EY Law based in Mannheim and Eschborn/ Frankfurt. He focuses on corporate and capital markets law. Mauritz studied law at Bucerius Law School, Hamburg and the University of Oxford. In 2012, he received Master of Laws (LL.M.) degrees from New York University and the National University of Singapore. In 2013, he was admitted as Attorney-at-Law in the State of New York and in 2014, he received a Ph.D. in Law from Augsburg University. In 2015, he was admitted to the German Bar. Prior to joining EY Law, Mauritz worked in the Frankfurt office of a major international law firm, focussing on equity and debt capital market transactions, including initial public offerings (IPOs), rights offerings and corporate bond offerings.

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Flughafenstraße 61, 70629 Stuttgart, Germany Tel: +49 711 98810 / URLs: www.ey.com/de_de / www.ey.com/de_de/law

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Nikos E. Pimblis & Nikos O. Xenoyiannis Papadimitriou – Pimblis & Partners

Introduction It is widely known that Greece has been suffering for the last 10 years from a severe financial crisis. The country has sought bailout loans from the International Monetary Fund, the European Commission and the European Central Bank, being unable to service its public debt on sustainable terms. The bailout loans were accompanied by Memoranda of Understanding, signed by the creditors and the Greek State, imposing structural reforms on the public sector in Greece, structural reforms in the Greek economy and austerity measures, affecting the majority of the population and also the economy in general. The securities market in Greece was also heavily influenced by the Greek financial crisis and as a consequence, no major shares IPOs or new listings were reported during the last period. On the contrary, the trading of many of the entities listed on the Athens Exchange had to be suspended and in many cases, entities decided to proceed to voluntary delisting from the Athens Exchange, as the latter did not appear to be a credible source for new funds. This should be considered in light of the fact that the four major systemic Greek banks, forming the cornerstones of the Greek securities market, have had to be recapitalised on more than one occasion in recent years. Each recapitalisation resulted in a heavy dilution of existing shareholders and a heavy depreciation to the share price of each bank. The financial crisis, and the structural reforms of the bailout programmes, have also resulted in a scarcity of new money available through the banking system in Greece. In order to cope with the new environment, some high-capitalisation companies in Greece have sought alternative means of financing through the bond market of the Athens Exchange. Companies with sustainable financials and prospects for growth have launched successful IPOs for the issuance and listing of corporate bonds, which in a sense became a new trend in Greece, substituting the lack of new share IPOs. The Athens Exchange (or AthEx – http://www.helex.gr) is the operator of the regulated securities market in Greece and its infrastructure may support trading in shares, rights, certificates representing transferable securities, debt securities (Bonds), units of Exchange Traded Funds (ETFs), Structured Financial Products (SFPs) and warrants. The aforementioned transferable securities are classified, according to their special characteristics, into different segments which are distinguished as follows: • Shares – “General Segment” (Main Market). • Shares – “Low Dispersion Special Segment”. • Shares – “Under Surveillance Special Segment”. • Shares – “To Be Deleted Special Segment”. • Debt Segment (Bonds).

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• ETFs Segment. • SFPs Segment. • Warrants. The Greek market for listed securities is rather small, as currently there are 174 different listed shares, one ETF and 15 listed bonds (excluding Greek Government bonds). Initially, shares are listed on the Main Market of the AthEx, but such listing is subject to review on a regular basis. Shares, when listed on the AthEx, in parallel with their classification into segments, are also classified into industry sectors according to the FTSE/Dow Jones Industry Classification Benchmark (ICB) model. The AthEx also operates the sole Multilateral Trading Facility (MTF) in Greece, the Alternative Market (EN.A. as per the Greek acronym). EN.A. is operated in accordance with the EN.A. Rulebook, which is notified to the Hellenic Capital Market Commission (HCMC), which supervises the market in question, particularly on issues concerning market abuse, public offers and Prospectus, in case the issuance of one is mandatory. EN.A. is not a “regulated market” under MiFID and does not fall under the obligatory provisions that apply in regulated markets and impose strict admission and ongoing requirements. EN.A. was designed as the AthEx’s response to the demand for an alternative to the Main Market, an alternative with less strict admission and ongoing requirements. It aims to attract companies active in fast-growing sectors, start-ups and other entities which have solid financials and seek alternative ways to meet the needs of financing their business model. In the long term, entities listed on the EN.A. may seek to enter the Main Market of the AthEx. Currently, 12 entities have listed their shares on the EN.A. of the AthEx, whereas only three bonds are listed on EN.A. In the near future, provided that the financial crisis is overcome, EN.A. may prove itself an attractive vehicle for companies with growth prospects. Aside from the securities markets operated by the AthEx, described above, there is a separate regulated securities market referring mostly to Greek State bonds. It is the Electronic Secondary Securities Market (HDAT as per the Greek acronym), operated and regulated by the Bank of Greece. Typically, HDAT is a regulated market for both Greek State bonds and also for other fixed-income debt securities issued by the Greek State or by other entities having the guarantee of the Greek State. Currently, only Greek Government bonds are listed on HDAT. Its operation, organisation and management are regulated by the “HDAT Operating Rules”. HDAT is a quote-driven market where assets are traded at “bid” and “ask” prices quoted by participants/dealers. HDAT has a real-time data service connection with Bloomberg and Thomson Reuters.

The IPO process: Steps, timing and parties and market practice The process as from the decision of an issuer to list its securities to the actual listing and admission for trading on the AthEx may take from six months to one year, depending on the peculiarities of the case and the responsiveness of the parties involved. The procedure may be divided into two main parts: the first part referring to the internal preparation of the issuer; and the second to the filing and approval of the listing documentation by the competent authorities. The internal preparation of the issuer involves, firstly, the decision as regards the entity’s business plan, the amounts to be raised from the market and the use of the funds to be raised. Following this step, the issuer should choose the Sponsor(s) for the issue (credit institution or investment firm), who will have the overall responsibility of the issue and be the person in charge of the preparation of the filing documentation.

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The issuer should also select a financial and legal advisor for the issue, who will perform the respective due diligence processes on the entity to be listed. The summary of the reports of these advisors shall be included in the Prospectus to be published. The drafting of the Prospectus is usually a time-consuming procedure, as it involves many parties (many of the issuer’s departments, the Sponsor(s) as well as the legal and financial advisors) and its contents are both extensive and technical in many respects. In practice, aside from the incorporation and finetuning of many financial data – which takes time – there is considerable debate and exchange of various drafts when discussing the “Risk Factors” section of the Prospectus. As soon as the first draft of the Prospectus is final, it is submitted to the HCMC for review and eventual approval. This part may prolong the whole procedure considerably, as – usually – it involves an ongoing Q&A and an exchange of views and drafts before the Prospectus is considered mature enough to be officially submitted to the HCMC for approval. In parallel, the Sponsor(s) and the issuer prepare the listing application accompanied by the remaining filing documentation. The listing application and documentation are submitted to the AthEx for review and approval. As soon as the HCMC approves the listing Prospectus and grants its permission for the IPO, the Prospectus is published on the website of the AthEx and of the issuer. At this time, the Sponsor(s) and the issuer organise presentations of the offer to the public (roadshows to a selected number of sophisticated parties as well as promotional/advertising material to the public). The IPO may be structured either with a fixed price per security (share or bond) or at a price to be determined via a “bid–ask” auction process. In the first case, the Sponsor(s) and the issuer determine the order of priority in case of oversubscription (usually on a “first come, first served” basis, but subject to volume caps), whereas in the second case the Sponsor(s) organise the proper book-building mechanism. Provided that the offer was successful and also that the issuer has adequate free float, the new securities are admitted for trading. As regards the applicable listing requirements, under the rules of the AthEx, in order for shares to be admitted for trading on the Main Market of the AthEx, the following basic requirements should be met: • The issuers’ shareholders’ equity must be at least €3m on a consolidated basis (in the event of non-consolidation, this criterion must be satisfied by the issuer alone). • The issuer must have published annual financial statements, audited by a certified auditor, for at least three fiscal years prior to its listing application. • Publication must be in accordance with IAS/IFRS or, in the case of foreign issuers, with equivalent accounting standards (by way of indication, US GAAP). • The issuer must have undergone a tax audit, for all the fiscal years for which there are published financial statements. In case of previous tax unaudited fiscal years, it is possible to submit a special tax audit report by an independent auditing firm. • The issuer must report an aggregate profit before tax of €2m for the last three years and be profitable for the last two years, or have an aggregate EBITDA (earnings before interest, taxes, depreciation, and amortization) of €3m for the last three years and positive EBITDA for the last two years. • Free float of at least 25% of total shares distributed to the public and at least 300 shareholders, none holding more than 5% of the share capital. • Shares lock-up: For companies with estimated capitalisation < €100m, during the first year after the listing, major shareholders (>5%) are permitted to transfer shares that represent a maximum of 25% of the shares they hold.

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• The total value of the stocks offered must be at least €2m. • Company’s shares must be freely negotiable. Admission for trading on the EN.A. of the AthEx requires the following – less stringent – criteria: • Minimum shareholders’ equity of €1m at the time of approval for trading shares. • Published financial statements for the last two fiscal years (audited by a Chartered Accountant). • Last financial statement prior to admission prepared according to IAS/IRFS. • Major shareholders (>5%) are permitted to transfer shares that represent a maximum of 25% of the shares they hold at the time the listing takes place. In case the last two fiscal years were loss-making for the company, major shareholders are prohibited from transferring shares for a period of one year from the date the listing took place. • The minimum free float is 15%, distributed to at least 50 shareholders, none of whom should hold more than 5%. • The company’s shares must be freely negotiable. The listing application must refer to the total number of a company’s shares of the same type. • Compliance with corporate governance is not mandatory, but required as best practice.

Regulatory architecture: Overview of the regulators and key regulations IPOs, listing documentation, Prospectus requirements and contents of the Prospectus as well as all obligations and responsibilities of listed companies are regulated by the HCMC. This refers both to entities listed on the Main Market of the AthEx as well as those listed on the EN.A. The HCMC exercises highly active supervision when it comes to the contents of a Prospectus or Information Memorandum, reviewing and providing comments and questions on all sections of the respective document (and is particularly keen on proper wording of the “Risk Factors” section). As soon as the securities of an issuer are listed, the HCMC is also keen to monitor compliance of the issuer with its periodic and extraordinary transparency obligations as well as all related parties’ obligations arising from market abuse legislation. All such obligations are described in brief below, under the “Public company responsibilities” section. The HCMC also regularly monitors press releases and other documentation disclosed to the public and has, on many occasions in the past, imposed fines on issuers for failing to provide true, adequate and not misleading information to the public. In addition, the HCMC regularly asks issuers to provide comments on press reports or articles relating to a listed entity.

Public company responsibilities There are a number of specific responsibilities applicable to companies with securities listed on the AthEx. Greece, as an EU member, has incorporated EU legislation on transparency requirements in relation to listed securities (Directive 2004/109/EC, as amended and in force). Moreover, Regulation 596/2014/EU on Market Abuse (Market Abuse Regulation – MAR) is directly applicable in Greece. We have summarised below the responsibilities and reporting obligations of entities listed on the AthEx, based on the above EU legislation as well as Greek implementing acts. Transparency-related reporting obligations Under Law 3556/2007, as amended, incorporating transparency Directive 2004/109/EC, a listed company has a number of reporting obligations which may be divided into two general categories: those related to periodic; and those related to extraordinary information to investors.

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As regards obligations of periodic information to investors, these refer to the listed company’s obligation to publish: i) an annual financial report including its audited annual financial statements; ii) its semi-annual financial report including the respective financial statements (unaudited but “reviewed” by the auditors); iii) in some cases, its quarterly (3M and 9M) financial statements1 (unaudited); and iv) its financial calendar (as provided for in the Rulebook of the AthEx). In relation to the annual and semi-annual report(s), these should include the financial statements (audited or reviewed, as the case may be) and a report by the management of the entity (Management Report). The Management Report includes a fair review of the development and performance of the business, the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. Moreover, said Report includes statements made by the persons responsible within the issuer, to the effect that, to the best of their knowledge, the financial statements prepared in accordance with the applicable set of accounting standards give a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer and the undertakings included in the consolidation taken as a whole. As regards extraordinary information to be provided to the public, this includes: i) the convocation of a General Meeting of shareholders; ii) a summary of the resolutions of any General Meeting; iii) resolutions on the payment of main dividends/interim dividends; iv) any change to the use of funds raised via the market and information on any material change to the contents of a published Prospectus; v) replies to any specific question asked by the AthEx or by the HCMC; vi) corporate presentations to analysts; vii) information regarding the performance and the results of any tax audit; and viii) publication of Prospectuses or Information Memoranda (obligation triggered if certain corporate events take place, such as acquisition or disposal of material assets). Shareholding-related reporting obligations Transparency legislation also provides that a listed entity should report material changes to its shareholding. This is primarily an obligation imposed on shareholders of the entity, who are obliged to proceed to the respective notification to both the listed entity and the HCMC. The relevant notification obligations are triggered when, as a result of a transfer of listed shares, a person holds a percentage equal to or in excess of 5%, 10%, 15%, 20%, 25%, one-third, 50% or two-thirds2 of the voting rights of the relevant issuer, or such ownership or control falls below these levels. The same applies where a person owns or indirectly controls more than 10% of the voting rights of the relevant issuer and the percentage of such person’s voting rights increases or decreases thereof by at least 3% of the total voting rights (article 9 of Law 3556/2007). It should be noted that an obligation to report a particular shareholding percentage is also triggered in cases of “indirect” acquisitions of shares, or even in cases where the shareholder is considered to have control of a particular amount of shares. In particular, in line with the provisions of article 10 of Directive 2004/109/EC, the notification requirement is also triggered in cases of: (a) voting rights held by a third party with whom that person or entity has concluded an agreement, which obliges them to adopt, by concerted exercise of the voting rights they hold, a lasting common policy towards the management of the issuer in question; (b) voting rights held by a third party under an agreement concluded with that person or entity providing for the temporary transfer for consideration of the voting rights in question;

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(c) voting rights attaching to shares which are lodged as collateral with that person or entity, provided the person or entity controls the voting rights and declares its intention of exercising them; (d) voting rights attaching to shares deposited with that person or entity which the person or entity can exercise at its discretion in the absence of specific instructions from the shareholders; and (e) voting rights which that person or entity may exercise as a proxy where the person or entity may exercise the voting rights at its discretion in the absence of specific instructions from the shareholders. Market abuse-related prohibitions and obligations Aside from the obligation of a listed entity to disclose a range of information on its corporate and business affairs provided by the transparency-related legislation described above, disclosure obligations also arise under the provisions of the MAR. Under the MAR, a listed company should provide to the public on an ad hoc basis any information which could have a material impact on the decision-making process of an existing or potential investor. Such information is regarded as “inside information” in MAR terminology.3 The meaning of inside information can be found in article 7 par. 1 of the MAR, according to which inside information (privileged information) shall mean information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more issuers or to one or more financial instruments, and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments, or on the price of related derivative financial instruments. Under the above definition, three key concepts are the pillar stones of inside information: i) the information should be of a precise nature; ii) the information has not been made public; and iii) if the information was made public, it would be likely to have a significant effect on the price of the listed shares. In practice, there is constant debate in Greece as to whether information such as a listed entity’s business plan constitutes inside information, and whether it should be made public as soon as available. Due to its commercial sensitivity (business secret), such a document is usually not made public, either because it is considered as not having information of a precise nature, or because its publication is delayed (perpetually) under article 17 par. 4 of the MAR. Aside from obliging the listed entity to disclose inside information, the MAR also prohibits market manipulation, imposing a number of restrictions as regards transactions in listed securities. In brief, actions that are considered to be market manipulation are: (a) entering into a transaction, placing an order to trade or any other behaviour which: (i) gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument; or (ii) secures, or is likely to secure, the price of one or several financial instruments at an abnormal or artificial level; (b) entering into a transaction, placing an order to trade or any other activity or behaviour which affects or is likely to affect the price of one or several financial instruments, which employs a fictitious device or any other form of deception or contrivance; (c) disseminating information through the media, including the internet, or by any other means, which gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument, or is likely to secure the price of one or several financial instruments at an abnormal or artificial level, including the dissemination of rumours, where the person who made the dissemination knew, or ought to have known, that the information was false or misleading; or

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(d) transmitting false or misleading information or providing false or misleading inputs in relation to a benchmark, where the person who made the transmission or provided the input knew or ought to have known that it was false or misleading, or any other behaviour which manipulates the calculation of a benchmark. In addition, it is a case of market manipulation if individuals who hold inside information use such information to acquire or dispose of (on their own behalf or on behalf of others), directly or indirectly, financial instruments to which such information relates, or to advise or consult, or suggest or induce, another (natural or legal) person based on inside information to acquire or dispose of financial instruments to which the privileged information relates. Corporate governance obligations Under Greek corporate governance rules, a listed entity should have a Board of Directors (BoD) composition under which at least one-third of its members comprise non-executive members, and at least two of those members qualify as independent non-executives. Moreover, under recent legislation (article 44 of Law 4449/2017), an Audit Committee consisting of independent individuals is also required. Its members may be either non- executive members of the BoD or third parties appointed by the General Meeting of shareholders. At least one of its members should have sufficient auditing knowledge and experience. The Audit Committee may either be an independent committee or a committee of the BoD and is, inter alia, responsible for monitoring and upgrading the internal audit system that the issuer is obliged to have. A listed entity should also adopt and follow a Corporate Governance Code (in practice, a number of templates are available and usually the entity declares that it adopts “template X”), and an Internal Regulation of Operation. These documents describe the internal corporate governance rules and policies, and the internal organisation chart and the functions of each department of the issuer.

Potential risks, liabilities and pitfalls As described in the introductory section of the present, the Greek securities markets are currently facing a recession similar to the recession of the Greek economy in general. This has led to limited interest in new IPO projects in the market and has also resulted in a number of listed companies opting for voluntary delisting from the AthEx market. Presently, a listed company is faced with the financial burden of being listed which is not necessarily balanced by a potential prospect to raise money from the Greek market. In addition to this, a listed entity is faced with a set of obligations and fields of potential liability resulting from the legislation on transparency requirements and prohibition of market abuse, as described above. This environment is further darkened as a consequence of a recent case which caught the attention of the press and eventually of the HCMC. As it appears, the consolidated financial statements of a major listed group of companies had a number of inaccuracies and false data, which resulted in a fraudulent boosting of the financial results of the group. Following a forensic investigation of some of the entities of the group (affiliates of the listed entity), it appeared that many of the entries in the annual reports of such affiliates contained fictitious amounts. The fictitious “boosting” of the annual consolidated data of the group appears to have been enormous (the actual value of the group appears to be about one-tenth of the “boosted” value).

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This case has resulted in a significant shock to the national and international reputation of the Greek securities market. Moreover, as a result of this case, the markets expect strict supervision from the HCMC and frequent audits to all listed entities. Additionally, third- party experts, such as financial or legal advisors, are expected to proceed with great caution when dealing with an expert opinion on any listed entity.

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Endnotes 1. Obligation to publish quarterly reports is provided for credit institutions with listed securities. 2. Note that the percentages under Greek Law are not identical to the percentages mentioned in article 9 of Directive 2004/109/EC, as in force. 3. The Greek version of MAR refers to “προνομιακή πληροφόρηση” which is “privileged information”.

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Nikos E. Pimblis Tel: +30 210 72 56 593 / Email: [email protected] Nikos Pimblis has considerable experience in commercial law and practice with particular emphasis on securities and regulated markets law. He has acted as General Counsel of the Athens Stock Exchange (1996–99) as well as Member of its Legal Council (2001–10). He has acted as Counsel to the Board of Directors of Hellenic Exchanges S.A. and is a member of the AthEx Markets Steering Committee. Prior to becoming Managing Partner of Papadimitriou – Pimblis & Partners, Nikos Pimblis had been a Partner and Deputy Managing Partner of Koutalidis Law Firm (1999–2012 and 2012–17). In addition, he was an assistant professor at the Law School of the University of Maine, France (1987–92) and Maître de Conférences at the University of Cergy-Pontoise, France (1992–95). His Ph.D. dissertation was on “Bankruptcy in French private international law” (Paris 1992) and he is the author of numerous articles on corporate law and securities in Greek.

Nikos O. Xenoyiannis Tel: +30 210 72 56 593 / Email: [email protected] Nikos Xenoyiannis has around 15 years of experience in corporate and commercial law. Prior to becoming a Partner at Papadimitriou – Pimblis & Partners in 2018, Nikos Xenoyiannis worked as an associate and senior associate of Koutalidis Law Firm from 2005–17. He has provided day-to-day consulting to Lambrakis Press S.A. (DOL), FG Europe, RF Energy, Société Générale Private Banking, and Alpha Bank (treasury). Moreover, he has represented Vodafone Greece in major M&A transactions, Lambrakis Press S.A. (listed) in relation to launching a tender offer and its delisting, and Attica Bank in relation to its recapitalisation in 2015 and its share capital increase of 2018. Moreover, he has represented the four systemic banks of Greece (Alpha Bank, Eurobank, Piraeus Bank and National Bank of Greece) on their divestment from two listed companies of aquaculture (Selonda Aquaculture S.A. and Nireus Aquaculture S.A.).

Papadimitriou – Pimblis & Partners 6, Patriarchou Ioakeim st., Athens, GR 10674, Greece Tel: +30 210 72 56 593 / URL: www.ppandpartners.gr

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Angel Wong & David Zhang ONC Lawyers

Introduction Brief history of IPOs in Hong Kong • The Stock Exchange of Hong Kong Limited (the “SEHK”) was incorporated in 1980, unifying the then four exchanges in Hong Kong.1 • In July 1993, the first PRC incorporated enterprise was listed in Hong Kong.2 • In November 1999, the Growth Enterprise Market was established to provide a platform for fundraising for companies with growth potential. • The SEHK, Hong Kong Futures Exchange Limited and Hong Kong Securities Clearing Company Limited merged and formed a single holding company, Hong Kong Exchanges and Clearing Limited (the “HKEx”), the shares of which were listed on the Main Board of the SEHK (the “Main Board”) on 27 June 2000. • In 2012, the HKEx, Shanghai Stock Exchange and Shenzhen Stock Exchange established a joint venture, China Exchanges Services Company Limited, for developing financial products and related services. Shanghai-Hong Kong Stock Connect was launched in November 2014 while Shenzhen-Hong Kong Stock Connect was launched in December 2016, creating access for Mainland investors to securities traded on the SEHK through their domestic brokers. • In December 2017, the Growth Enterprise Market was renamed as GEM.3 • The efforts of the HKEx and the other relevant market participants have made Hong Kong one of the leading listing venues in the world. From January 2019 to December 2019, the IPO equity funds raised at the HKEx amounted to approximately US$40,055 million, ranking first in the global listing market.4 Reasons for companies to choose to list in Hong Kong The Hong Kong Government and HKEx endeavour to maintain Hong Kong as an attractive spot to local and foreign companies for fundraising and listing activities. The following features of the Hong Kong securities market are some of the major reasons for companies to choose to list in Hong Kong: Objective listing qualifications: The SEHK adopts a rather objective set of listing qualifications, with very limited policy considerations, giving certainty to the listing process. The following table sets out certain listing qualifications for companies to be listed on the Main Board and GEM:

Main Board (satisfying one of the following tests) GEM Profit test Market Market capitalisation/ Cash flow test capitalisation/ revenue/cash flow test revenue test

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Main Board (satisfying one of the following tests) GEM • Three-year • Latest year’s • Latest year’s revenue • Positive two-year aggregate aggregate profit ≥ revenue ≥ ≥ HK$500m OCF ≥ HK$30m HK$50m, of which: HK$500m • Market capitalisation ≥ • Market capitalisation ≥ • Year one + year • Market HK$2,000m at the time HK$150m two ≥ HK$30m capitalisation of listing • Year three ≥ ≥ HK$4,000m HK$20m • Positive three-year at the time of aggregate operating • Market listing capitalisation ≥ cash flow (“OCF”) ≥ HK$500m at the HK$100m time of listing • Minimum 25% public float (can be reduced to 15% if market • Minimum 25% public float capitalisation at the time of listing > HK$10,000m) (can be reduced to 15% if • Three-year management continuity market capitalisation at the time of listing > HK$10,000m) • One-year ownership continuity • Two-year management continuity • One-year ownership continuity Minimum 300 shareholders Minimum 100 shareholders

Leading position in the global market: Hong Kong has successfully established itself as an international financial centre and as a global leading listing venue. As at 31 December 2019, the market capitalisation of the Main Board and GEM amounted to approximately HK$38,165.0 billion.5 Well-established legal system: The well-established common law system with the rule of law upheld by an independent judiciary, together with a robust regulatory regime protecting investor interest, give confidence to local and foreign issuers as well as investors. Strong bonds with China: Hong Kong is a common listing and fundraising venue for PRC companies and international enterprises, and serves as a key link for China to connect with the global capital markets. It is also a trusted channel for foreign enterprises to access funds of PRC investors. Diversity of investors and issuers: Hong Kong enjoys a balanced mix of institutional and retail investors. This helps to attract issuers from a wide range of industries, including real estate, telecommunications, upstream and downstream manufacturing, retail business, e-commerce, financial services, construction, internet business, education, energy, etc. Doors opened for emerging and innovative sectors and weighted voting right structure: In April 2018, the HKEx published the Consultation Conclusions to expand the existing listing regime to facilitate the listing of companies from emerging and innovative sectors, subject to appropriate safeguards.6 The HKEx introduced three chapters to the Main Board Listing Rules to: (i) permit listing of biotech companies that do not meet any of the financial eligibility tests; (ii) permit listing of innovative and high growth companies with a weighted voting rights structure; and (iii) establish a concessionary secondary listing route for emerging and innovative Greater China and international companies (known as Qualified Issuers) that are primarily listed on a specified qualified exchange.

The IPO process: Steps, timing and parties and market practice Steps and timing of IPOs in Hong Kong The SEHK adopts a streamlined vetting process for listing application. The listing application submitted to the SEHK must be substantially complete. Depending on the complexity and the scale of the IPO, overleaf is a general timeline for illustrative purposes.

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Steps Typical timeline Particulars Pre-IPO One year or • Assessing the applicant’s business, financial conditions diagnosis more before the and management to determine if the applicant will meet the target date of qualifications for listing. listing (“Listing • Identifying any issues in the business model, legal and regulatory Date”) compliance, land-related matters, accounting, internal control and tax including transfer pricing. • Pre-IPO diagnosis is particularly important for applicants with cross-border operations. Pre-IPO One year or • Restructuring the listing group for listing purposes. reorgan- more before the • Transferring all material contractual rights, licences and assets to isation Listing Date the listing group. • Delineating the excluded business from the listing group. • Incorporating the listing vehicle. Pre-IPO One year or • Securing financial resources from private equity investors or investment more before the strategic investors. Listing Date • Determining the terms of pre-IPO investment. Guidance Letter HKEx-GL43-12 provides that: (i) the SEHK will generally delay the first day of trading of the applicant’s securities until 120 clear days after the completion or divestment of the last pre-IPO investments, if the applicant has a pre-IPO investment completed within 28 clear days before the date of the first submission of the first listing application form; and (ii) certain special rights attached to pre-IPO investments are not permitted to survive after listing.7 Kick-off Not less than six • Engaging professional parties to form an IPO team. A listing months before application must not be submitted by or on behalf of a new the Listing Date applicant less than two months from the date of the sponsor’s formal appointment. • Circulating a memorandum on publicity restrictions on all parties in the IPO team. • Fixing a listing timetable. • Identifying the candidates of independent, non-executive directors. There must be at least three and at least one of them must have appropriate professional qualifications or accounting or related financial management expertise. Sponsor’s Ongoing until • Conducting reasonable enquiries and investigation regarding due the Listing Date the listing group, the controlling shareholders as well as the diligence, directors and senior management, the listing group’s business prospectus operations, major customers, suppliers and subcontractors, preparation principal bankers, etc. and • Drafting the contents of the prospectus. verification • Preparation of an accountants’ report by the reporting accountants. The latest financial period reported on by the reporting accountants must not have ended more than six months before the date of the listing document. • Verification of the contents of the prospectus by obtaining documentary evidence. This is typically an extremely time- consuming but important exercise. A1/5A sub- 80 days before • Submission of the listing application to the SEHK. The mission the Listing Date application shall include a substantially completed draft of the prospectus8 and other required forms. Vetting 70 days before • The SEHK gives comments on the listing application. The ability process the Listing Date to address the SEHK’s comments in a timely and satisfactory manner is crucial to the listing timetable. • In practice, the first round of comments is usually issued within four weeks from the listing application. • There is no pre-set timeframe for the vetting process. The length of such process depends largely on the quality of the listing application submitted and the complexity of the issues involved.

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Steps Typical timeline Particulars Listing Generally around • Attending the hearing in which the remaining issues and hearing 20 days before concerns regarding the listing application will be raised by the the Listing Date Listing Committee of the SEHK. Post- 14 days before • Addressing and replying to any further queries from the Listing hearing the Listing Date Committee. • Convening a long board meeting to approve the listing and the relevant documents. • Publishing a post-hearing information pack on the SEHK’s website. • Issuing pre-deal research and distributing a red herring prospectus during the roadshow. Prospectus At least one day • Entering into a Hong Kong or public offer underwriting registration before the date agreement. of prospectus • Registering the prospectus and other listing documents (e.g. application forms) with the Companies Registry of Hong Kong.9 Before Seven days • Printing the prospectus and posting it on the SEHK’s website. dealings before the • Entering into an international or placing underwriting agreement. commence Listing Date • Fixing the final offer price. • Continuing to conduct due diligence by the sponsor. Listing Date The dealings in shares on the SEHK commence. Post-listing Within 30 Exercising an overallotment option (if any). days after the publication of the prospectus

Parties involved in the IPO process in Hong Kong The following table sets out the main parties involved in the IPO process and the roles they play:

Parties Roles and duties The listing The major roles and duties of these key personnel include: applicant • providing assistance to the professional parties to accelerate their understanding of the business and commercial strategies of the listing applicant and providing the basis for the drafting of the prospectus; • providing the professional parties with information and documents about the company for due diligence, prospectus drafting and verification; and • making presentations to the financial and investor community during roadshows. The sponsor Under the Listing Rules, every applicant must appoint a sponsor for the listing application.10 The key roles and duties of the sponsor include: • conducting due diligence on the listing applicant, its controlling shareholders and management in accordance with Practice Note 21 to the Listing Rules to ensure the suitability for listing of the listing applicant and that the prospectus contains sufficient information; • coordinating all professional parties involved in the listing application to conduct due diligence, draft the prospectus and the listing application documents; • addressing matters raised by the SEHK and the Securities and Futures Commission (the “SFC”); and • attending any meetings with the SEHK. Legal advisers The legal advisers to the listing applicant shall advise on legal and regulatory to the listing issues to the listing applicant. Their major responsibilities include: applicant • advising on the corporate structures and executing the group reorganisation; • drafting and preparing the prospectus sections and application documents which are customarily prepared by the legal advisers to the listing applicant; • providing training to the directors and senior management of the listing applicant; • reviewing and commenting on the underwriting agreements; and • attending to prospectus registration.

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Parties Roles and duties Legal advisers The legal advisers to the sponsor and the underwriters provide assistance and to the advice to the sponsor and underwriters. Their major responsibilities include: sponsor and • assisting the sponsor in conducting due diligence in accordance with Practice underwriters Note 21 to the Listing Rules; • drafting and preparing the prospectus sections and application documents which are customarily prepared by the legal advisers to the sponsor and the underwriters; • conducting prospectus verification; and • drafting and reviewing underwriting agreements. Reporting The major duties of the reporting accountants include: accountants • preparing an accountants’ report and the unaudited pro forma financial information to be disclosed in the prospectus; • providing assistance on financial-related matters; • issuing comfort letters to the sponsor and underwriters regarding the financial information provided in the prospectus; and • issuing a statement of indebtedness, sufficiency of working capital and reviewing cash flow and profit forecast. Financial The financial printer is primarily responsible for typesetting, translating and printing printer the prospectus and application forms. It also provides a venue for all professional parties for meeting and work finalisation. Property valuer The independent property valuer is responsible for the valuation of property interests held by the applicant. The property valuation report must be included in the prospectus if the carrying amount of property interest is 15% or more of the applicant’s total assets.11 Internal control The internal control consultant is responsible for: consultant • reviewing the internal control system and procedures of the listing applicant; • providing recommendations to enhance the internal control system and procedures; and • assisting the sponsor in assessing the applicant’s ability to meet the internal control requirements under the Listing Rules. Hong Kong The Hong Kong share registrar is responsible for maintaining the applicant’s register share registrar of members in Hong Kong and recording any transfers in the issuer’s shares. Industry The industry consultant is usually engaged for the purpose of conducting market consultant research and analysis and preparing an industry report, which will be disclosed in the prospectus. Compliance The compliance adviser is engaged for the period from the date of listing until the adviser publication of the issuer’s financial results for the first or second full financial year following its listing. The issuer shall consult the compliance adviser regarding certain compliance matters. The The key roles of the underwriters include administering the “book building” underwriters process and distributing the securities of the issuer during the offering period.

Bilingual prospectus requirement – unique feature of IPOs in Hong Kong One of the unique features of the SEHK is the requirement of a bilingual prospectus (in both English and Chinese).12 Market players in Hong Kong are accustomed to preparing dual-language documentation and conducting bilingual communication with the regulatory authorities. This enables the listing applicant to be closely involved and fully informed throughout the listing process.

Regulatory architecture: Overview of the regulators and key regulations Organisations responsible for regulating IPOs in Hong Kong The responsibility of overseeing the regulatory regime of the Hong Kong IPO market primarily rests with the SEHK and the SFC.

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In general, the SEHK assumes the role in regulating the market operation. In particular, it is the duty of the SEHK to ensure that the Hong Kong listing market is operated in a fair, orderly and informed manner.13 The aforementioned regulatory functions of the SEHK are shared between the Listing Division and the Listing Committee. The SFC, being an independent statutory body, is entrusted with the responsibility of maintaining and promoting fairness and transparency of the securities and futures industry, of protecting public investors and of reducing systemic risks in the securities and futures industry.14 The SFC carries out its functions through the exercise of its statutory powers of investigation and enforcement. Since 2017, the SFC has adopted a front-loaded approach and early stage intervention becomes common when the SFC suspects serious cases of corporate misconduct. Key rules and regulations applicable to the IPO process in Hong Kong The major laws and regulations governing the listing process in Hong Kong include the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), the Securities and Futures Ordinance (Cap. 571), and the Listing Rules. Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) A prospectus complying with certain content requirements is required for the offer of shares in a company to the public.15 The prospectus must also be registered with the Registrar of Companies before publication.16 Section 40 and Section 342E provide that the following persons shall be liable to compensate investors for the loss they have sustained by reason of any untrue statement or material omission in the prospectus: • the directors of the company at the time of issue of the prospectus; • persons who are named in the prospectus as directors or as having agreed to become directors and who have authorised themselves to be so named; • a promoter of the company; and • any person who has authorised the issue of the prospectus. Section 40A and Section 342F provide that any person who has authorised the issue of a prospectus (e.g. directors) containing any untrue statement or material omission may be liable to imprisonment and a fine, unless they can prove either that the statement was immaterial or that they had reasonable grounds to believe, and did up to the time of the issue of the prospectus believe, that the statement was true. Securities and Futures Ordinance (Cap. 571) (SFO) The SFO imposes civil and criminal liabilities for misstatements which induce investment. Section 108(1) provides that a person who makes any fraudulent, reckless or negligent misrepresentation which induces others to deal in securities may be liable for compensation. Section 107 imposes criminal liability for making fraudulent or reckless misrepresentation inducing others to deal in securities, which is punishable by a maximum fine of HK$1 million and up to seven years’ imprisonment. By virtue of Section 277, it is market misconduct to disclose false or misleading information, or omit a material fact from the disclosure, which induce securities transactions. Pursuant to Section 257(1), the Market Misconduct Tribunal may impose different sanctions for market misconduct, including a disqualification order, cold shoulder order, cease and desist order, disgorgement order, costs order, disciplinary referral order, etc. Section 298 and Section 303 impose criminal liability in similar circumstances as Section 277, punishable by a fine of up to HK$10 million and imprisonment for up to 10 years. Any person committing market misconduct may be liable for compensation under Section 305.

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Section 384 imposes criminal liability on any person who intentionally or recklessly provides any information which is false or misleading in a material respect in filing with the SEHK or the SFC a prospectus, other listing document or any public disclosure materials disseminated under the Listing Rules. Copies of applications to list on the SEHK and all ongoing disclosure materials are filed with the SFC through the SEHK under the “dual filing” regime. An offence under Section 384 is punishable by up to two years’ imprisonment and a maximum fine of HK$1 million. Listing Rules The Listing Rules set out conditions which the listing applicants are expected to meet before securities may be listed in Hong Kong. In addition, the SEHK also issues guidance letters and listing decisions to provide additional guidance on application of the Listing Rules.

Public company responsibilities Obligations exclusively imposed on public companies in Hong Kong The Listing Rules require companies listed on the SEHK to comply with a list of continuing obligations. Listed below are some examples of such obligations:

Obligations Particulars Announcement An issuer is required to publish an announcement for different matters, e.g. inside information,17 any change of directors, supervisor or chief executive,18 specific types of advances to an entity,19 notifiable transactions,20 connected transactions,21 etc. Circular A circular shall be issued when an issuer needs to seek the shareholders’ approval for certain matters, e.g. connected transactions, certain types of notifiable transactions, proposed alteration of the memorandum and articles of association and proposed issue of shares. Annual report, interim report A Main Board issuer should issue an annual report no later than and quarterly report four months,22 and a half-year interim report no later than three months,23 after the end of the relevant period. A GEM issuer should issue an annual report no later than three months after the financial year-end.24 A half-year interim report and a quarterly report for the first three- or nine-month period of each financial year shall be issued no later than 45 days after the date on which the relevant financial period ends.25 The following information shall be included in the annual report: chairman’s statement; directors’ report; financial statements; management discussion; and an analysis and corporate governance report, etc. If an environmental, social and governance report (“ESG Report”) is not included in the annual report, the issuer should publish an ESG Report separately.26 Response to the SEHK’s There is a general obligation on the part of the issuer to answer the inquiries enquiries raised by the SEHK in relation to the unusual movements in the price or trading volume of securities of the issuer.27 The issuer is expected to respond to such inquiries promptly and, where appropriate or requested by the SEHK, issue an announcement containing a statement in the prescribed form to the effect that it is not aware of any matter or development relevant to the unusual price movement or trading volume.28 Maintain sufficient business A listed issuer must maintain a business with a sufficient level of and asset operations and assets of sufficient value to support its operations in order to warrant its continued listing.29

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Potential risks, liabilities and pitfalls As discussed above, the listing market in Hong Kong is subject to joint regulation by the SEHK and the SFC. Under the current regulatory regime, civil and criminal liabilities may arise during and after the IPO process.

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Endnotes 1. “History of HKEX and its Market”, HKEX Group, https://www.hkexgroup.com/ About-HKEX/Company-Information/About-HKEX/History-of-HKEX-and-its- Market?sc_lang=en. 2. HKEx Fact Book 1999, https://www.hkex.com.hk/-/media/HKEX-Market/Market-Data/ Statistics/Consolidated-Reports/HKEX-Fact-Book/HKEx-Fact-Book-1999/FB_1999.pdf. 3. Consultation Conclusions, The Review of the Growth Enterprise Market (GEM) and Changes to the GEM and Main Board Listing Rules (December 2017), https://www. hkex.com.hk/-/media/HKEX-Market/News/Market-Consultations/2016-Present/June- 2017-Consultation-Paper-on-Review-of-the-Growth-Enterprise-Market/Conclusions- (December-2017)/cp2017062cc.pdf. 4. HKEx Market Statistics 2019, https://www.hkex.com.hk/-/media/HKEX-Market/ Market-Data/Statistics/Consolidated-Reports/Annual-Market-Statistics/2019- Market-Statistics.pdf. 5. HKEx Market Statistics 2019, as above. 6. Consultation Conclusions, A Listing Regime for Companies from Emerging and Innovative Sectors (April 2018), https://www.hkex.com.hk/-/media/HKEX-Market/ News/Market-Consultations/2016-Present/February-2018-Emerging-and-Innovative- Sectors/Conclusions-(April-2018)/cp201802cc.pdf. 7. Guidance Letter GL43-12. 8. Rule 9.03(3) of the Main Board Listing Rules and Rule 12.09 of the GEM Listing Rules. 9. Sections 38D and 342C of the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap. 32). 10. Rule 3A.02 of the Main Board Listing Rules and Rule 6A.02 of the GEM Listing Rules. 11. Rule 5.01B(2)(a) of the Main Board Listing Rules and Rule 8.01B(2)(a) of the GEM Listing Rules. 12. Section 38(1) of the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap. 32). 13. “How We Regulate”, https://www.hkex.com.hk/Listing/How-We-Regulate/Overview%20 ?sc_lang=en. 14. “Introduction to Regulatory Framework”, https://www.hkex.com.hk/Services/Rules- and-Forms-and-Fees/Regulatory-Framework/Introduction?sc_lang=en. 15. Sections 38 and 342 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). 16. Section 38D(1) and 342C(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). 17. Rule 13.09 of the Main Board Listing Rules and 17.10(2) of the GEM Listing Rules. 18. Rule 13.51(2) of the Main Board Listing Rules and Rule 17.50(2) of the GEM Listing Rules.

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19. Rules 13.13 and 13.14 of the Main Board Listing Rules and Rules 17.15 and 17.16 of the GEM Listing Rules. 20. Chapter 14 of the Main Board Listing Rules and Chapter 19 of the GEM Listing Rules. 21. Chapter 14A of the Main Board Listing Rules and Chapter 20 of the GEM Listing Rules. 22. Rule 13.46 of the Main Board Listing Rules. 23. Rule 13.48(1) of the Main Board Listing Rules. 24. Rule 18.03 of the GEM Listing Rules. 25. Rules 18.53 and 18.66 of the GEM Listing Rules. 26. Note 1 to Rule 13.91 of the Main Board Listing Rules and Note 1 to Rule 17.103 of the GEM Listing Rules. 27. Rule 13.10 of the Main Board Listing Rules and Rule 17.11 of the GEM Listing Rules. 28. Rule 13.10(2) of the Main Board Listing Rules and Rule 17.11(2) of the GEM Listing Rules. 29. Rule 13.24 of the Main Board Listing Rules and Rule 17.26 of the GEM Listing Rules.

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Angel Wong Tel: +852 2107 0311 / Email: [email protected] Angel specialises in corporate finance and has advised many listing applicants and sponsors in IPOs on the Main Board and GEM of the Hong Kong Stock Exchange. Angel has experience in a wide range of corporate and commercial matters, including pre-IPO restructuring and financing, IPOs, overseas listing, mergers and acquisitions, loan and financing transactions, licensing and registration under the Securities and Futures Ordinance, corporate governance and general compliance for listed companies as well as private enterprises.

David Zhang Tel: +852 3906 9642 / Email: [email protected] David specialises in corporate finance transactions including IPOs and pre- IPO financings and he has advised many listing applicants and sponsors in IPOs on the Main Board of the Hong Kong Stock Exchange. David has experience in a wide range of general corporate and commercial matters, including licensing and registration under the Securities and Futures Ordinance, mergers and acquisitions, corporate reorganisations and joint ventures. David also advises listed companies on corporate governance and general compliance of the Hong Kong Listing Rules.

ONC Lawyers 19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong Tel: +852 2810 1212 / URL: www.onc.hk

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Márton Kovács, Áron Kanti & Bálint Juhász HBK Partners Attorneys at Law

Introduction The Hungarian capital market is centralising on the Budapest Stock Exchange (BSE). The BSE, founded in 1864 and re-established after the fall of socialism in 1990, has a well-known history and excellent reputation across the CEE region. Since 2015, the BSE has been owned and controlled by the Central Bank of Hungary which, as a shareholder, is clearly committed to boosting capital market activity in Hungary through various financial and technical measures. Despite a clear upward trend in the number of capital market transactions taking place on the BSE in the past couple of years, initial public offerings IPOs( ) are still a relatively rare occurrence on the Hungarian capital market. A more typical transaction on the BSE is when already-listed companies release additional shares to attract investors and raise additional capital. A “classic” IPO process is almost a “once in a year” type of transaction in Hungary. As one of the recent initiatives of the BSE, in 2017, the Xtend platform was launched, aiming at supporting the growth plans of small and medium-sized companies. Together with introducing the Xtend platform, the National Stock Exchange Development Fund (NSEDF) was also launched, which provides investments in Xtend issuer candidates with the typical ticket size of EUR 3,000,000 in exchange for a minority stake in the company. Nonetheless, going public on Xtend does not necessarily involve an IPO. Due to changes in EU regulations on the European single capital market, including in particular Regulation (EU) 2017/1129 of the European Parliament and of the Council on the Prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (Prospectus Regulation), the Hungarian Act CXX of 2001 on the Capital Market (Capital Market Act) was also amended in 2019. The reactions to the amendment of the Capital Market Act were mixed from investors and market participants as it did not satisfy all expectations. Despite the above, pre-COVID-19, there was an increased level of expectancy that the number of IPOs would rise in the upcoming economic period. Of course, at the time of writing this chapter (April 2020), no one dares to say what effects the pandemic might have on the regional and Hungarian capital market trends and activity. Finally, it is worth mentioning that Hungarian market participants are generally open- minded to transactions involving distributed ledger or blockchain-based technology, but Security Token Offerings are not yet regulated transactions on the Hungarian capital market.

The IPO process: Steps, timing and parties and market practice To achieve a successful IPO, the issuer, together with bookrunners and financial and legal consultants, should prepare a comprehensive, detailed step-by-step plan and timeline in

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© Published and reproduced with kind permission by Global Legal Group Ltd, London HBK Partners Attorneys at Law Hungary advance. The whole process requires frequent collaboration and strong teamwork amongst all participants. The issuer should preferably set up a separate team or a practice group within its organisation to properly control and implement the procedure in-house. Steps and timing STEP I: Preparing The following tasks are typically completed in the phase of preparing: • Kick-off: Following the indicative decision on starting the process, the selected bookrunner(s) and other experts start to familiarise themselves with the issuer, its organisational structure and history. Then, typically, the transaction advisor organises a kick-off meeting, where the representative persons of the issuer explain the purpose of the IPO. By this point, non-disclosure agreements in general and especially with respect to potential insider information must already be signed; therefore, it is important to set up a contact list and agree on the framework and channels of communication among members of the project team. Depending on the size of the issuer, these preparatory tasks can take a couple of weeks or more. • Due diligence: Preparing a legal and financial due diligence DD( ) with respect to the issuer is an elementary component of a successful IPO process. A diligently conducted DD can detect potential or existing pitfalls, which can, at this point, still be addressed and resolved successfully. During the process, the issuer provides a virtual data room to the DD teams, where it uploads all the requested information and documents. The legal DD’s aim is to pinpoint any statutory restriction or any contractual provision or structural hiatus which may be an obstacle to the IPO, while financial DD helps the lead coordinator’s and/or bookrunner’s work by way of mapping and the issuer’s actual financial status and future financial plans. In general, a DD process takes around one to two months; however, depending on the complexity of the corporate structure of the issuer, it can easily take longer. • Corporate governance: The Hungarian Civil Code generally regulates the fundamental corporate governance and operational rules regarding private companies. Notwithstanding the foregoing, more strict regulations are imposed on public companies, thus the corporate structure of companies seeking to participate in an IPO issue must be synchronised therewith. A scope of the legal DD is usually to identify the gaps between the pre- and post-IPO corporate structure of the company. • Adopting resolutions: A decisive part of the process is to get all necessary approvals of the general meeting and other responsible authorised bodies of the IPO candidate. From a legal perspective, the actual IPO process starts after the adoption of these resolutions. STEP II: Countdown period While the preparatory steps are aiming at laying down the foundation of the IPO process, the countdown period is dynamically starting to build on it until reaching the peak point: the listing of issued shares to the relevant trading platform. These blocks are as follows: • Prospectus or other relevant offering memorandum, approval of the competent authority: In accordance with the Prospectus Regulation, the IPO candidate shall draw up a Prospectus if making a public offer of securities and/or listing them to the regulated market. Although IPOs can take place on the regulated market, it is also feasible to organise an IPO on BSE’s MTF platform, Xtend, as described above. The advantages are evident; in case of an Xtend IPO, if the issuer and the offering meet some basic criteria, no approval by the Central Bank of Hungary is required for publishing the information memorandum, as the information is only examined and approved

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by the BSE, which results in a faster IPO procedure. Contrarily, the publication of a Prospectus is subject to the Central Bank of Hungary’s approval. Preparing and publishing a Prospectus is one of the most complex and strictly regulated capital market institutions, therefore it requires a great deal of care and attention. In our experience, the Central Bank of Hungary is open to and encourages preliminary discussions and consultation with the issuer before the Prospectus is filed which is a good opportunity to discuss the key structure of the planned IPO and also provides an opportunity to address and resolve any regulatory questions. • Arrangements, organising the launch of the IPO: Besides the approval procedure, the issuer establishes arrangements with paying and listing agents, and settles the sales and marketing strategy of the offered shares. It is strongly recommended to hold a meeting with the highly competent and cooperative representatives of the BSE prior to the launch of the IPO. • Launch: The approved Prospectus, together with press releases, is published by the issuer. Investors can be informed on the IPO via the Prospectus, which contains all relevant information including the size of the IPO, minimum subscription, etc. On the BSE Standard Market, an issued share can only be listed if its market capitalisation reaches approx. EUR 700,000 and a minimum 10% or EUR 285,000 free float. • Roadshows, public marketing events: It is important to dynamically promote the IPO in the press and in public marketing events, including roadshows. Most of the subscribers are institutional investors, therefore management meetings should also be held to ensure trust in the company’s future and the value of the issued shares. STEP III: Closure, listing shares After the countdown of subscribing period, the following steps should be taken: • Setting the price, allocation of shares: As the closure of book-building procedure, the lead coordinator and bookrunners, together with the underwriters, fix the final price of the shares and determine the level thereof. Afterwards, the shares are allocated to investors following the marketing of the dematerialised shares with assistance from the Central Clearing House and Depository in Hungary (KELER). Basically, payments are executed in delivery versus payment method. It is obliged to the issuer company to publicly disclose the mechanism and information described herein. • Listing the issued shares: Trading with the shares of the issuer begins following the listing. However, upon request of the issuer, it is possible for this to be held on the same day. At the beginning, trading can be volatile due to hype around the newly issued shares, but underwriters may be able to stabilise the price range of the shares and lower volatility. It should be noted that these activities may be under the regulation of market abuse regulation in the EU. • Disclosure obligations: The issuer should familiarise themselves with disclosure obligations regarding EU and Hungarian regulations. The most important task is to comply with inside information and trading regulations, and to prevent the trading of shares from malicious traders. Parties The typical project team of an IPO includes the following persons: Management board and relevant in-house team members The members of the management board shall represent the issuer throughout the IPO process and before competent authorities and other participants, such as BSE and KELER. Moreover,

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© Published and reproduced with kind permission by Global Legal Group Ltd, London HBK Partners Attorneys at Law Hungary the members of the management board are expected to be available for public relations and marketing purposes. For operational and special expertise demanding purposes, issuers involve in-house consultants and/or associates. Auditor The issuer should involve in the process the company’s auditor whose main task is to provide an audited financial report for the last year in order to list the shares to the Standard Market of the BSE. An auditor may be necessary for providing financial information to underwriters during the IPO process. Supervisory board, audit committee The supervisory board generally has supervision control over management and its activities, also relating to the IPO process. The Hungarian Civil Code prescribes public companies to maintain an audit committee in order to ensure and provide the supervisory board’s work connected to financial audit. However, in some special cases, neither a supervisory board nor an audit committee is obligatory; instead, the issuer may set up a governing board which merges the competences of a management and supervisory board. An audit committee may be replaced by any other corporate body which is able to fulfil the tasks and activities of the same. Underwriters, investment service providers The lead coordinators during an IPO process are the underwriters and investment service providers. In IPOs where a Prospectus is to be published, the contribution of investment service providers is obligatory pursuant to the Capital Market Act. Mostly, these investment service providers are also underwriters and they coordinate the whole process. Legal experts The IPO process is one of the most complicated capital market transactions, which requires well-prepared legal experts. The legal experts maintain the legal and technical part of the transaction, including the DD process, preparing the vast majority of the Prospectus, corporate documentation, policies, public disclosure guidelines, arrangements, agreements, etc. For these reasons, selecting a team which has a high-intensity work attitude with significant experience in the field of Hungarian capital markets is essential. Media and public relations There is no IPO without a well-constructed promotion and media campaign; therefore, cooperation with public relations and media experts is necessary. Said experts must have industry knowledge, because IPO press releases and marketing publications must be drafted carefully.

Regulatory architecture: Overview of the regulators and key regulations General regulatory background The main Hungarian entities responsible for regulating and overseeing IPOs are as follows: • Central Bank of Hungary (CBH): CBH is acting within its function as supervisory authority of the financial intermediary system. During an IPO process, the publication of a Prospectus is subject to prior approval of CBH. Furthermore, CBH controls issuers’ public statements and examines whether the issuer’s reports comply with relevant domestic and EU legislation as well as international accounting standards. • Budapest Stock Exchange (BSE): BSE, as an independent legal entity in which CBH holds a controlling interest, is responsible for the organisation and operation of the stock exchange market in Hungary. As a market operator, BSE lays down the detailed

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rules relating to listing and trading. BSE also makes the final decision on the listing of a company’s shares. • KELER: KELER is the Central Clearing House and Depository in Hungary and is responsible for, inter alia, the execution of the relevant dematerialisation events regarding the securities to be listed on a regulated market. KELER is owned by CBH and BSE. The key elements of the legal regime applicable to the IPO process and the public companies under the Hungarian jurisdiction are the following: • Act V of 2013 on the Civil Code (Civil Code). • Act CXX of 2001 on the Capital Market. • Regulation (EU) 2017/1129 of the European Parliament and of the Council 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. • Commission Delegated Regulation (EU) 2019/979 on supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council with regard to regulatory technical standards on key financial information in the summary of a Prospectus, the publication and classification of Prospectuses, advertisements for securities, supplements to a Prospectus, and the notification portal, and repealing Commission Delegated Regulation (EU) 382/2014 and Commission Delegated Regulation (EU) 2016/301 (RTS). • Act V of 2006 on Public Company Information, Company Registration and Winding- up Proceedings (Companies’ Act). • Decree No. 24/2008. (VIII.15.) of the Minister of Finance on the Detailed Rules of Disclosure Obligations related to Publicly Traded Securities (Disclosure Decree). • Regulation (EU) 596/2014 of the European Parliament and of the Council on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (MAR). • The General Terms of Service of the Budapest Stock Exchange Ltd. (BSE GTS). • The General Business Rules of KELER Central Depository Ltd. Different requirements in IPOs The above regulations governing the capital market transactions are applicable to all IPOs in Hungary; however, different regulation may apply to the various listing possibilities. For example, BSE GTS defines to some extent the different requirements for listing securities in the Equities Prime Market or in the Standard Market. Furthermore, in Hungary, it is also possible for a company to go public via an IPO by listing its shares on the Xtend market which has its own terms independent from the regulated market. Restrictions on communications In terms of communication throughout the IPO process, issuers should note that according to Article 16 of the RTS, any information disclosed in oral or written form concerning an offer of securities to the public or an admission to trading on a regulated market, whether as an advertisement or for other purposes, shall not: (i) contradict any information disclosed in the Prospectus; (ii) refer to information that contradicts any information disclosed in the Prospectus; (iii) present the information in the Prospectus in a substantially unbalanced way, including by way of presentation of negative aspects of such information with less prominence than the positive aspects, or by omission or selective presentation of certain information; or (iv) contain alternative performance measures unless they are contained in the Prospectus.

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Information to be disclosed for investors The Prospectus Regulation of the EU indicates the type and extent of information to be shared with the prospective investors by the issuer in the Prospectus. Some of the required content of the Prospectus concerning the issuer are the following: (i) financial data; (ii) capitalisation and indebtedness; (iii) potential risk factors; (iv) business overview; (v) organisational structure; and (vi) major shareholders, etc. In addition to the requirements of the Prospectus Regulation, due account is to be taken by issuers of the provisions of the RTS regarding the content of key financial information. Recent changes to the regulatory architecture The Capital Market Act has recently been amended effective from January 18, 2020. The changes mainly serve the purpose of strengthening further compliance with the relevant legislation of the European Union including, in particular, the Prospectus Regulation.

Public company responsibilities There are plenty of benefits of and opportunities to be gained from going public via an IPO; however, public limited companies are subject to several special obligations that are not applicable to private limited companies. The most significant obligations related to public operation are as follows: Disclosure obligations According to the relevant Hungarian rules, the issuers shall provide certain information relating to its securities admitted to trading in a regulated market, either on a regular or on an extraordinary basis. Furthermore, issuers must meet the disclosure requirements stipulated in MAR. Public companies must have enough capacity and an appropriate reporting mechanism, including the necessary information and communication system to enable them to properly fulfil their disclosure obligations herein. • Regular disclosure Within the framework of regular disclosure, issuers shall disclose essential details to the public of their financial position and the general course of their business in the form of half-yearly and annual reports. These reports comprise of (i) accounts of the closed financial period, (ii) the reports of the management, (iii) the reports of statutory auditors, and (iv) responsibility statements. Furthermore, issuers shall make public, on the last day of each calendar month, the number of voting rights attached to their shares for each series respectively, indicating the portfolios of their own shares, as well as the amount of their capital. • Extraordinary disclosure All information shall be disclosed by the issuer which directly or indirectly affects the value or yield of the security or the assessment of the issuer. The detailed scope of the information to be disclosed is set forth in the Disclosure Decree as a non-exhaustive list. Through market supervision, CBH examines the proper fulfilment of extraordinary disclosure, paying special attention to certain matters of public companies, as follows: (i) changes in the statutory auditor; (ii) public or private placement of securities; (iii) capital increase against contribution in kind; (iv) changes in the senior executives; (v) corporate transactions; and (vi) sudden and significant changes in the company’s financial state. • Inside information According to MAR, which is directly applicable in Hungary, the issuer shall inform the public as soon as possible of inside information which directly concerns that issuer,

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where “inside information” shall have the particular meaning given to that in MAR. The issuer shall post and maintain on its website all inside information it is required to disclose publicly for a period of at least five years. In addition to the disclosure requirements, the issuers shall draw up, promptly update and provide CBH with a list of all persons who have access to inside information. • Managers’ transactions Persons with management responsibilities, as well as persons closely associated with them, shall simultaneously notify the issuer and the MNB of every transaction conducted on their own account relating to the shares or debt instruments of that issuer or to derivatives or other financial instruments linked thereto. Such notifications must be made no later than three business days from the date of the transaction. It should be noted that although MAR governs, among others, the financial instruments admitted or requested to be admitted to trading on a regulated market, MAR’s provisions on managers’ transactions shall apply to issuers requesting or approving admission of their financial instruments to trading on a regulated market. Corporate governance standards Besides the fundamental rules of corporate governance stipulated in the Civil Code applicable to public companies, there are internationally recognised and applied standards and recommendations of responsible and transparent corporate governance practices to be taken into consideration by public companies. In Hungary, those principles and standards are published and regularly reviewed by the BSE in the periodically reviewed and updated Corporate Governance Recommendations (CGR). The current version of the CGR is effective as of August 1, 2018. The CGR contains recommendations and proposals related to shareholders’ rights, the rules of the general meeting, the board of directors and the supervisory board, the conflict of interest of the management, and the internal control system and risk management. The proposals are non-binding suggestions, while the recommendations are binding for all issuers, meaning that issuers derogating from those are required to provide an explanation to the BSE. The management board of public companies must also prepare and present to the annual general meeting the corporate governance report for approval. The corporate governance report contains a questionnaire provided by the BSE which measures the issuer’s level of compliance with the CGR. The questionnaire to be completed by the issuers consists of questions on whether the company follows the relevant recommendation or proposal; if not, the company is expected to justify the derogation with a brief explanation. This “comply or explain” type of questionnaire has been prepared in accordance with Commission Recommendation 2014/208/EU on the quality of corporate governance reporting. The Corporate Governance Committee of the BSE analyses the data provided by the issuers in their corporate governance reports and prepares an annual monitoring report which focuses on the statistical data representing the level of compliance reflected in the corporate governance reports, emphasising the reasons for typical or significant derogations.

Potential risks, liabilities and pitfalls Invalid subscription A significant risk may arise during an inadequately prepared IPO process if the issuer fails to meet the requirements to the subscription of securities. For example, according to the Capital Market Act, a subscription shall be null and void if the securities were offered in the absence of a Prospectus or without the involvement of an investment service provider

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© Published and reproduced with kind permission by Global Legal Group Ltd, London HBK Partners Attorneys at Law Hungary where such requirements apply. The legal consequences are the same where the securities are offered to the public or presented for admission to trading on a regulated market in the absence of a corporate decision to change the issuer’s form of operation to a public one. Content of the Prospectus Since the Prospectus contains all the necessary information that is crucial to an investor for making a well-founded decision on investing in the shares offered, the information provided therein must be true, correct and complete. To ensure the fulfilment of this requirement, the issuer and its management body (or other players according to the Capital Market Act assisting in the IPO, where applicable) shall be held responsible for the information presented in the Prospectus and in that context shall be liable for any and all damage caused to an investor, for five years after the date of publication of the Prospectus. According to Hungarian law, this liability cannot be validly excluded or limited. The persons held liable shall sign a statement of liability attached to the Prospectus. Further to the above, it should be noted that the content of the Prospectus must reflect the actual overall situation of the company. If the CBH becomes aware of any material fact or circumstance that would require the rejection of the approval for the publication of the Prospectus or would significantly jeopardise the investors’ interests, the CBH shall withdraw its approval issued for the publication of the Prospectus and compel the issuer to terminate the marketing procedure. Infringement of disclosure rules As previously mentioned, the proper fulfilment of disclosure obligations imposed on public companies is primarily supervised by the CBH; therefore, in cases where an issuer fails to comply with the relevant reporting rules, it usually triggers the intervention of the CBH. In such cases the CBH is entitled to take measures or apply sanctions against the issuer in a wide scale, from an official warning to the suspension of the offering or the subscription of securities for a fixed period. Violation of MAR As detailed herein above, the issuers are obliged to follow the relevant rules of MAR throughout the IPO procedure and during their whole operation as a public company, the violation of which may result in a serious outcome. In addition, insider dealing, market manipulation or unlawful disclosure of inside information by third persons may adversely affect the exchange rate of the related shares. Breaching the rules of the BSE Further to the issuance of the relevant listing and trading rules, the BSE is also responsible for ensuring that the issuers duly meet the requirements set out in the BSE GTS. For this purpose, in the event of non-compliance with or delay in the fulfilment of the obligations stipulated therein, the BSE may apply sanctions against the issuers. These sanctions include a warning, a pecuniary fine, or the delisting of the issuer’s securities.

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Dr Márton Kovács Tel: +36 1 610 4440 / Email: [email protected] From 2003, Márton Kovács worked in the real estate and litigation practice group of the Budapest office of Baker & McKenzie. In 2006, he founded his own firm and from January 2017, he became one of the founding partners of HBK Partners. Although his professional experience covers mainly real estate and M&A, he is also proficient in capital markets transactions, having led HBK Partners’ capital markets team in all three public takeovers at the Budapest Stock Exchange in 2017 and the listing of Hungary’s fourth largest commercial bank in 2019. Further, he has gained unique experience in hotel law, representing various investors vis-à-vis global and local hotel operator companies. Márton is also a lecturer in M&A courses of the Budapest Institute of Banking (BIB) and holds workshops for various VC funds and start-up companies.

Dr Áron Kanti Tel: +36 20 572 7748 / Email: [email protected] Áron Kanti is an associate in the Corporate M&A and Capital Markets practice in HBK Partners. He mainly focuses on M&A and capital investment transactions alongside providing legal advice in regulatory matters of financial institutions and investment funds. He also gained experience in the legal matters of securities, including placement and listing securities on the regulated market and on multilateral trading facilities. He participated in representing and advising one of the five largest commercial banks in Hungary in legal aspects of listing its shares on the Budapest Stock Exchange.

Dr Bálint Juhász Tel: +36 30 375 5032 / Email: [email protected] Bálint Juhász is an associate in the Banking & Finance and Capital Markets groups at HBK Partners, Budapest. Bálint represents both investment service providers and issuers in private and public security offerings, and also advises clients on equity and loan financing transactions. Bálint provides legal advice for clients across different industry sectors including financial services, fintech, and the building and construction industry. Bálint participated in representing and advising one of the largest Hungarian commercial banks on listing its shares on the Budapest Stock Exchange, which instantly became the sixth most valuable company listed on the Hungarian regulated market.

HBK Partners Attorneys at Law Kálvin Square Offices, Kálvin tér 12, Budapest 1085, Hungary Tel: +36 1 610 4440 / URL: www.hbk-partners.com

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Arka Mookerjee & Pracheta Bhattacharya J. Sagar Associates

Introduction Indian primary capital markets have been influential in providing opportunities for Indian businesses to expand, modernise and diversify through fundraising, in lieu of issuing equity shares to the public. For modern companies, the ability to access means of finance through initial public offerings (“IPOs”) has propelled their growth. Indian primary capital markets have grown consistently over the years. The financial years 2017 and 20181 saw heightened activity in the primary market, both in terms of number of issuances and in the amount of capital raised. According to public sources, in the financial year 2018, Indian companies raised US$ 23.3 billion, making it the best year in terms of IPO proceeds. While financial year 2019 was subdued owing to macroeconomic factors, financial year 2020 saw an uptick in equity fundraising with US$ 12.2 billion being raised in equity funding. Despite ongoing health-related macroeconomic factors, the Indian IPO market is expected to remain attractive due to a resilient and growing economy, strong domestic liquidity and robust corporate earnings. Steady investor confidence, and rising domestic participation in the equity markets, are expected to result in a healthy IPO pipeline across sectors in the coming years. Brief history The primary market in India gained importance and popularity amongst corporates in the era of liberalisation commencing from the year 1992. Before this era of free pricing, the Controller of Capital Issues (“CCI”) was the regulatory authority governing the primary markets in India. The CCI had expansive powers to determine the fate of a corporate accessing capital markets, including the power to dictate: (i) which corporates could raise capital; and (ii) the enterprise value of the corporate, and consequently the pricing of the shares to be offered. However, in 1992, the Government of India abolished the CCI and constituted the Securities and Exchange Board of India (“SEBI”) through an act of parliament, as an autonomous, statutory authority to regulate the capital markets. One of the key philosophies introduced by the Government was that the SEBI intended to “regulate” rather than “control” capital markets. Key changes introduced included free pricing, and a disclosure-based regime with an overarching power to regulate issuers, intermediaries and market participants. Thereafter Indian capital markets have shown tremendous growth and potential. SEBI introduced the Disclosure of Investor Protection Guidelines (“DIP Guidelines”) in 1992, which were subsequently amended and updated in 2000. These laid down disclosure requirements and the procedures by which IPOs are governed. The DIP Guidelines were subsequently overhauled and given a regulatory status by introducing regulations, known

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© Published and reproduced with kind permission by Global Legal Group Ltd, London J. Sagar Associates India as the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009. The 2009 regulations were recently updated by way of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018 (“ICDR Regulations”). Currently, the ICDR Regulations and the Companies Act, 2013 regulate IPOs in India. Reasons for going public An IPO is an essential means of raising finance for companies to meet business needs. It is a complex transaction which marks a new milestone in the history of a company. A “listed company” in India, i.e. a company which has its securities listed on a recognised stock exchange, is required to adhere to strict norms of corporate governance and is regulated by SEBI and Indian stock exchanges. This enhances the credibility of the company and makes it easier to access funds in the future from both local and international investors and institutions. From being merely a private company, it becomes a regulated company with key corporate and financial information available in the public domain, based on which an investor could make an informed decision to invest in that company. Another important reason for a company to go public is to ensure that private equity investors who have invested in the company in its nascent stages have the opportunity to exit with an attractive valuation. Angel investors and private equity investors are significant contributors to the growth of a company, and to ensure that such private equity investors continue to remain enthusiastic towards capital investments, it is important that such investors can secure a viable exit with an attractive return on their investments. The current scenario is skewed towards private equity-backed IPOs in Indian companies, which are being priced attractively with the aim of unlocking and creating shareholder value. These reasons, coupled with a brighter earnings outlook for Indian corporates and a stable secondary market, have been inspiring Indian companies to embark on this “value journey”. It is pertinent to add that the current laws in India do not allow a foreign company to undertake an IPO on Indian stock exchanges. Conducive regulatory and market practices The adoption of international best practices and processes unique to the Indian scenario have ensured that the current regulatory regime and market practices are conducive for an Indian company to undertake an IPO. Extensive due diligence processes mandated by SEBI, regulatory oversight and empowering fiduciaries, have increased investor confidence in capital markets, which is fundamental to its successful operation. Prominent sectors Financial services (including banks, non-banking financial companies and large insurance companies) was the most prominent sector and recorded some of the largest IPOs between the years 2013 and 2020. Apart from financial services, consumer-focused industries such as food and agriculture, healthcare and pharma and infrastructure and technology also dominated fundraising activity through IPOs. Some prominent IPOs in the financial services sector were: • SBI Cards & Payment Services: US$ 1,371 million. • SBI Life Insurance Company: US$ 1,292 million. • ICICI Prudential Life Insurance Company: US$ 932 million. Trends and current IPO activity The Indian IPO market in financial year 2020 saw greater activity compared to financial year 2019, though overall the number of IPOs and proceeds raised did not reach the highs of 2018. The uncertainty and economic slowdown on account of the COVID-19 pandemic

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© Published and reproduced with kind permission by Global Legal Group Ltd, London J. Sagar Associates India is expected to lead to a muted ongoing financial year. While a strong IPO pipeline continues to exist with more than 20 companies wanting to raise almost US$ 3.5 billion, it is highly unlikely that any of these issues will hit the market until the uncertainty around the pandemic comes to an end. Financial year 2019 saw nearly 50 companies allow their SEBI approvals to expire owing to uncertainty and volatility in markets and a sharp correction in stock prices, wiping out gains garnered from new listings. As per market speculation, it is expected that the investor outlook for the current year will remain suppressed due to ongoing pandemic-based factors, and new issuers are unlikely to tap equity funding routes in the first two quarters of the ongoing financial year. It may be important to mention that private equity-backed IPOs are generally outperforming non-private equity-backed IPOs. Polycab India Limited (US$ 178.44 million), Metropolis Healthcare Limited (US$ 159.74 million) and CSB Bank Limited (US$ 54.34 million) are recent examples of successful private equity-backed IPOs.

The IPO process: Steps, timing and parties and market practice An IPO results in the transformation of a private company to a regulated public company, with far-reaching consequences in terms of liability. Given the intense level of regulatory scrutiny, it is important that a company be “IPO ready”. The business and cultural fabric of a company can often be completely overhauled during the IPO process. The entire process can typically be divided into two parts, namely: (a) key initiatives towards draft red herring prospectus (“DRHP”) filing; and (b) regulatory procedures until listing, and marketing activities. An IPO in India requires the filing of a draft offer document with SEBI, which is scrutinised by the regulator while comments from the public are also sought. The updated offer document, after incorporation of SEBI and public comments, is filed with the Registrar of Companies (“RoC”). Thereafter, the IPO is opened for subscription to the public. The final prospectus is filed with the RoC after closure of the IPO subscription but prior to the allotment of securities. A short summary of timelines and procedures are described under each of the headings below: Key initiatives towards DRHP filing This pertains to key activities that a company must address and adhere to prior to filing a DRHP with SEBI. This is an extremely important step, as the liability associated with a regulatory filing commences from this stage for both the company and the associated book running lead managers (“BRLMs”). Significant steps involved in this process include: (i) offer document preparation and the due diligence process, which should stand the scrutiny of SEBI; (ii) preparation of financial statements as per the ICDR Regulations; (iii) adherence to corporate governance norms; (iv) finalisation of the business model and plan; (v) obtaining consents and approvals; (vi) appointment of intermediaries; and (vii) discussions with shareholders for termination of special rights upon completion of the IPO. An illustrative list of activities is given below:

Sl. No. Activity 1. Kick-off meeting 2. Provision of data by issuer and due diligence exercise by BRLMs and legal counsel

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Sl. No. Activity 3. Interaction between issuer and research teams of BRLMs for research coverage 4. Drafting sessions to discuss and finalise offer document 5. Circulation of restated financial statements and examination report by the auditors 6. Board/shareholders’ meeting to approve IPO and changes in the capital structure, appointment of new directors, formation of committees 7. Finalisation of the issue agreement, registrar agreement and ad agency agreement and appointment of intermediaries 8. Publication of research reports 9. File DRHP with SEBI and stock exchanges

Regulatory procedures until listing, and marketing activities Post filing of the DRHP, typically two parallel procedures are conducted simultaneously or in close proximity to each other, namely: (i) the execution team of the BRLMs and the legal counsels works closely with SEBI and the stock exchanges to obtain regulatory clearance for the IPO; and (ii) the marketing teams, commonly known as the equity capital markets (“ECM”) teams of the syndicate members, prepare the senior management of the company and embark on roadshows to market the IPO to potential investors. It should be noted that such marketing activity must be conducted in adherence to specified laws; violation of these laws will have serious liability issues (covered below under “Publicity restrictions”). On receipt of satisfactory answers to queries raised, SEBI gives clearance to the DRHP and issues an observation letter indicating clearance. It is worth mentioning that issuance of the “SEBI Observation Letter” does not indicate that SEBI is responsible for the offer document or the contents thereof, nor endorses any investment in the IPO. Investors are required to take an independent, informed view, based on the information presented to them. If a final observation letter is received from SEBI and the marketing of the IPO is successful, i.e. if a “shadow book” indicating definitive success of the IPO is achieved, the company and BRLMs can prepare to launch the IPO. Following the receipt of bids and allocation to investors, an underwriting agreement is executed, and the prospectus is filed with the RoC. Application money must be compulsorily routed through a lien marking system in the bank account of the bidder (known as “ASBA mechanism”), except for that of anchor investors.2 The issuer allots equity shares pursuant to funds being actually received in the escrow account post allocation. The stock exchanges, namely the BSE and the NSE, grant an in-principle approval post filing of the DRHP and subsequently, a final approval for listing and trading. An indicative timeline post filing of the DRHP until listing of the equity shares is given below:

Timeline Sl. No. Activity (days) 1. Filing of DRHP with SEBI T 2. SEBI observations 45 3. Roadshows – 4. Finalisation of escrow banks and syndicate members – 5. SEBI approval on DRHP 80 6. Execution of agreements with intermediaries – 7. Board meeting to adopt red herring prospectus (“RHP”) for filing with RoC – 8. RHP filing with RoC (online and physical) 87 9. RoC approval on RHP 90

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Timeline Sl. No. Activity (days) 10. File RHP with SEBI and stock exchanges – 11. Issue of statutory advertisements – 12. Board meeting to approve the price band 93 13. Issue of advertisement to announce price bank 93 14. Press/broker meetings – 15. Mock trading/anchor bidding/finalisation of anchor allocation 94 16. IPO opening 95 17. IPO closing 98 18. Board meeting for deciding the final IPO price 99 19. Execute the underwriting agreement 99 20. Finalise the prospectus 101 21. File the prospectus with RoC 102 22. Finalisation of basis of allotment 102 23. Board meeting for allotment of shares 103 24. Confirmation of credit of shares and lock-in of shares 103 25. Receipt of trading permission 103 26. Issue of basis of allotment advertisement 104 27. Commencement of trading 104 28. Transfer of IPO proceeds to the company 105 Key parties to the IPO The following are the key parties associated with an IPO: • BRLMs, syndicate members and underwriters: Commonly known as “bankers”, they are involved along with their syndicate members in marketing and underwriting the IPO. SEBI requires that a BRLM registered with SEBI shall be responsible for the filings made by the company. BRLMs must certify to SEBI that the offer document filed is in accordance with the law. • Legal counsels: They represent the company, BRLMs or selling shareholders. In the case of an IPO marketed in the US, i.e. 144A IPO, at least one international legal counsel representing the BRLMs should be appointed. They solve legal issues and draft the offer documents, agreements, conduct diligence and provide customary legal opinions. • Auditors: They audit and restate the financial statements prepared by the company as per applicable accounting standards and provide audit reports, certifications and opinions. • Escrow bankers: The escrow bankers are intermediaries involved in the collection of application money from bidders and the allotment process. • Registrar: The registrar coordinates the entire process for collection of bids and allotment to successful bidders and acts as an interface between various agencies collecting bids for the IPO, the stock exchanges and the IPO team. • SCSBs: Self-certified syndicate banks (“SCSBs”) registered with SEBI are permitted to collect bids and earmark ASBA funds. • Monitoring agency: Any IPO which has a fresh issue size of more than approximately US$ 14 million is required to appoint a monitoring agency, which monitors the utilisation of funds raised as IPO proceeds. Unique regulation in India A unique feature of Indian IPO regulations is the requirement of minimum promoter contribution. This essentially means that promoter(s) of a company that is going public must necessarily lock in 20% of their post-IPO shareholding for a period of three years

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© Published and reproduced with kind permission by Global Legal Group Ltd, London J. Sagar Associates India post listing. SEBI and the prospective investor community still view the promoter(s) as the key figure(s), or the essential link to the company and its continued growth. In offshore jurisdictions, this requirement to lock in promoter shares post IPO is not necessary. As businesses in India are becoming increasingly professionally managed, it may be time to consider doing away with the requirement to have promoter shares locked in. However, this should be a gradual process that does not compromise investor protection.

Regulatory architecture: Overview of the regulators and key regulations The Indian primary and secondary markets are regulated by SEBI, formed by an act of parliament in 1992. It is a quasi-legislative, judicial and executive statutory body under the Ministry of Finance tasked to protect the interest of investors and to regulate and promote the development of capital markets in India. SEBI is managed by a chairman nominated by the Government of India and members nominated by the Ministry of Finance, the Reserve Bank of India and other officers of the Government of India. SEBI is divided into various departments, each department responsible for framing laws, and regulating a particular aspect of capital markets. IPOs are the responsibility of the Corporate Finance Department and, more particularly, the primary capital markets team within that department. Indian stock exchanges act as quasi-regulatory authorities who are primarily responsible for ensuring that the rules, regulations and by-laws framed by SEBI are effectively followed and implemented by the corporates whose shares are listed on these exchanges. SEBI has the overall regulatory oversight and supervises and instructs the stock exchanges by framing laws and issuing circulars from time to time. The compliance departments of these stock exchanges work closely with SEBI to monitor the Indian capital markets. Apart from this in a few situations, sectoral regulators such as the Reserve Bank of India, the National Housing Board and the Telecom Regulatory Authority of India may frame rules regarding a corporate having business in that sector and wanting to go public. Key rules and regulations IPOs in India are primarily governed by the ICDR Regulations which lay down the procedure and the disclosure norms that are required to be followed. Companies must also adhere to the Companies Act, 2013, which is the parent act governing issuance of securities in India. The Companies Act, 2013 lays down, amongst others, the approvals required for a public issue and the civil and criminal liability for a misstatement in offer documents and for non-adherence to laws. It also lays down the jurisprudential intent of the relationship between the shareholders and the board of directors of a company. Other regulations include the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) which lay down the rules and disclosure standards that a listed company must follow. These regulations also specify the minimum public float that a listed company is required to maintain. Key legal documents The following are the key legal documents in an Indian IPO context: Offer documents: The regulatory process for an Indian IPO begins with the filing of a DRHP, which faces legal and public scrutiny and must be approved by SEBI. Post receipt of approval and successful marketing, an RHP is filed with the RoC. The RHP may or may not contain the price band, which can be announced separately by advertisement in

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© Published and reproduced with kind permission by Global Legal Group Ltd, London J. Sagar Associates India newspapers. Post closure of the IPO and discovery of price though the book building process, a prospectus is filed with the RoC, which contains the final IPO price. Agreements: Those involved in the IPO process include: • The issue agreement, which lays down the mutual rights, obligations, representation and warranties between the issuer and the BRLMs. • The syndicate agreement, which lays down the responsibilities for the collection of bids. The agreement is usually entered into with the BRLMs and their brokerage arms for the coordination and collection of bids. The syndicate is tasked with coordinating the various sub-brokers and collection places. SEBI permits any broker, share transfer agent or collection agency registered with it, to collect bids in respect of an IPO. • The underwriting agreement, which sets out the underwriting obligations of the BRLMs and syndicate members. Although the ICDR Regulations require mandatory underwriting of IPOs, the market practice in India is to follow “soft underwriting”. This essentially means that if bids procured by an underwriter or a syndicate member are not valid, the underwriter must bring in the amount to the extent of the failed bid. Given that the regulations require all bids to be mandatorily placed through the ASBA mechanism, the risk of failed bids has been significantly reduced; consequently, at the moment, underwriting of IPOs is not a developed market in India. Disclosure requirements The disclosure requirements are specified under the ICDR Regulations and the rules issued under the Companies Act, 2013. India is moving towards a materiality-based disclosure regime. This is a significant move in the right direction, benefiting issuers and investors alike. Some of the key disclosure matters are: • Corporate and legal matters: The disclosure requirements can be broadly classified into: (i) information about the corporate structure of the company including corporate governance disclosures; (ii) business model of the issuer highlighting strengths, strategies, financial analysis and risk factors; (iii) utilisation of issue proceeds (applicable in case of a fresh issue only); (iv) material licences required to conduct business; and (v) material legal proceedings impacting the company. As an ongoing effort to objectively view disclosures from a materiality aspect, disclosure requirements regarding entities of the issuer group have been reduced. Further legal proceedings of a civil nature have been benchmarked to a materiality policy adopted by the board. • General financial disclosures: According to ICDR Regulations, consolidated financial statements are disclosed in the offer documents, while the standalone financial statements and the material subsidiary financial statements are required to be uploaded on the website of the company. Restatement of accounts on a consolidated basis for the last three financial years must be undertaken with adjustments for audit qualification, provisions not previously made, other adjustments, prior period items and changes in accounting policies or incorrectly applied accounting policies. • Pro forma financial disclosures: For special situations, for example, if an acquisition or divestment has taken place post the latest period for which audited financial information has been disclosed in the offer document, pro forma financial statements are prepared based on assumptions and projections to show the effect of the acquisition on the financial statements of the company. Companies do, however, have the flexibility to

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provide voluntary pro forma financial statements, to give potential investors an accurate picture of the impact of such an event. Publicity restrictions ICDR Regulations impose publicity restrictions on issuers and intermediaries during the IPO process. The black-out period commences from when the board of directors approves the IPO until listing of the shares. No statements, interviews, public communications or publicity material can be disseminated which is extraneous to the contents of the offer documents. Projections, estimates and descriptions of any future business plan are strictly prohibited. Advertisements and other publicity materials should be consistent with past practices. Any communication, other than product advertisements, must specifically carry a legend that the company is proposing an IPO. Violations of any of the above restrictions can be construed as market manipulation and will attract penal actions from SEBI. The BRLMs must submit a compliance report to SEBI stating that news reports appearing in newspapers and magazines during the IPO period are consistent with the offer document. Recent amendments and significant regulatory changes • Materiality-based disclosures: The ICDR Regulations have rationalised disclosure requirements and emphasised materiality-based disclosures. This makes IPO preparedness easier, while providing a potential investor with all the material and pertinent information required for them to make an informed investment decision. For example, reduction of the disclosure requirement to restate financial information in the offer document (from five years to three years) has considerably reduced the amount of preparedness time, while continuing to give a potential investor a picture of the most recent financial performance of the company. • Promoter contribution: Institutional investors such as private equity funds, commercial banks and insurance companies, can now contribute towards the minimum promoter contribution. This will enable professionally run, board-managed companies to go for an IPO. • Applications supported by electronic banking systems: This reduces the risk of bogus applications or failed applications as the application money is blocked upfront in the banking system. This is also expected to help reduce the time for listing post closure of subscription in an IPO. • Reduced timelines between closing of the issue and listing: The current timeline between closure of subscription and listing of equity shares has been reduced to six working days as opposed to the earlier 12 working days (approximately). This prevents price manipulation, thereby boosting investor confidence in the primary capital markets. SEBI has indicated that it is in the process of further reducing timelines for listing to three working days. • Investments by domestic mutual funds and broadening anchor investor category: Over the years we have seen increased participation by domestic mutual funds as anchor investors for IPOs. Further inclusion of insurance companies, private equity funds and venture capital funds in the definition of “anchor investors” has reduced the dependence on procuring overseas participation for Indian IPOs. • Tax implications: The Government of India through its finance bill has introduced a levy of tax at 10% on long-term capital gains tax for disposal of equity shares (subject to payment of securities transaction tax). This has financial implications for a shareholder selling shares through an IPO. • COVID-19 relaxations: In light of the COVID-19 pandemic, SEBI has provided certain one-time relaxations, including an extension of time periods of compliance

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with disclosure norms for listed companies, an increase in the validity period of its observations on draft offer documents, permission for change in issue size without triggering refiling requirements and a reduction of filing fees for public issues. Market practices Due to the evolving nature of disclosure standards in Indian capital markets, certain practices have developed which do not flow strictly from regulatory requirements. Among these, it is worth mentioning the status of investor rights in a post-IPO scenario. Based on feedback from SEBI and stock exchanges, market participants now have a clear view that special rights for any pre-IPO investor or shareholder cannot survive in a post-IPO scenario. The only exception to this norm is the right of nomination of a director by an investor or shareholder – subject to shareholding limits – provided that this right also be validated by the post-IPO shareholders in a general meeting held after the IPO.

Public company responsibilities Listed companies in India must follow the LODR Regulations for continued compliance and reporting requirements to Indian stock exchanges. Indian stock exchanges are primarily responsible for monitoring compliance with reporting requirements. Non-compliance attracts a penalty and can also be referred to SEBI for further action, including debarment. Under the LODR Regulations, advance notice must be given prior to a board meeting or a shareholder meeting, and timely disclosure of material events must be made by listed companies to the stock exchanges for dissemination to the public. Ongoing disclosure requirements of listed entities include filing quarterly reports of their shareholding pattern, while promoters and designated insiders are also required to file reports with the company on shareholding and other interests in the company. Further, trades in a financial year above specified thresholds are also required to be reported by insiders. The company in turn must report such trades and intimations to the stock exchange within specified timelines. Additionally, insider trading regulations prohibit the procurement or dissemination of material information to selected persons, and prohibit trading by persons in possession of unpublished, price-sensitive information. With a view to implementing best corporate governance practices by listed companies, in May 2018 SEBI amended the LODR Regulations to implement some of the recommendations of the Kotak Committee. This Committee was constituted under the chairmanship of Mr. Uday Kotak on 2 June 2017 to review and recommend changes to corporate governance norms for Indian companies. Some of the key amendments include: (i) having a minimum of six directors; (ii) at least one independent director must be a woman; (iii) reducing the number of other directorships to not more than seven; (iv) delinking the post of chairman and managing directors and making the post of chairman non-executive, (applicable to the top 500 listed entities); and (v) enhanced supervisory roles of the audit and nomination and remuneration committees of the board. The aim of the Kotak Committee and subsequent amendment to the LODR Regulations was to strengthen the board and increase the accountability of independent directors, with the aim of protecting minority shareholders.

Potential risks, liabilities and pitfalls Indian IPO regulations demand a very high standard of disclosure and require complete, true and adequate disclosures to be made to investors. As an offer document is scrutinised

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© Published and reproduced with kind permission by Global Legal Group Ltd, London J. Sagar Associates India by SEBI and must be cleared by it though issuance of an observation letter, the standard of diligence is very high. This requires each and every statement made in an offer document to be justified and supported by factual data, and reviewed by the legal counsels and BRLMs. Where factual data is not available, reliance can be placed on expert reports or opinions, provided that such experts are named in the offer document. While the issuer is primarily responsible for the accuracy and correctness of the statements in an offer document, BRLMs associated with an IPO are also responsible for the accuracy and truthfulness of such statements. BRLMs must provide a due diligence certificate to SEBI, confirming that the IPO has been conducted in compliance with all applicable laws, and submit a report on the due diligence methodology employed. There are regular inspections conducted by SEBI on BRLMs, where they must justify the diligence conducted based on data obtained and retained during the diligence process. Risks on non-compliance or mis-selling There are far-reaching regulatory consequences of non-compliance with disclosure requirements. Promoters and directors have both a civil and criminal liability for misstatements in a prospectus. Any misstatements could also attract shareholder action. Post listing, if there is a change or variation in utilisation of the offer proceeds, an exit option must be given to dissenting shareholders. SEBI has wide powers to investigate, adjudicate and inspect listed companies and BRLMs, even after a successful IPO. If satisfactory diligence has not been conducted, or if it is found that material information has been withheld or inaccurately presented, SEBI may debar the promoters or directors from accessing the capital markets, impose a high monetary penalty on the company and the BRLMs, issue a warning or cancel its registration of the BRLM. In extreme cases, it can even ask the company to delist. Common risks and pitfalls The essential requirement for a company going public in India is IPO preparedness. Lack of preparedness, or failure to put adequate compliance systems in place, can lead to misstatements. It is worth mentioning that SEBI follows a formalised policy for rejection3 and keeping its observations in abeyance.4 It has the power to reject an offer document if: (i) material litigation affecting the survival of the business exists; (ii) the promoters are unidentifiable; (iii) the business model of the company is vague or misleading; (iv) the use of proceeds is not demonstrated adequately; (v) audit reports are qualified or misleading financial statements are provided; and (vi) key approvals are lacking, amongst others. Observations may be kept in abeyance if: (i) probable cause for investigation or enquiry exists or if investigation or enquiry is in progress; (ii) where show cause notices have been issued; (iii) where recovery proceedings have been initiated or an order of disgorgement or monetary penalty has not been complied with or in case of non- compliance with any direction issued by SEBI; (iv) where matters were remanded by the Securities Appellate Tribunal; and (v) where issuers have been restrained by courts from undertaking a public issue. Furthermore, if there is a variance in objects of the issue, dissenting shareholders must be given an exit option. If stated strategies in the offer document are not followed or are misleading, it may lead to shareholder action post IPO. It is to be noted that risk factors relating to the business, as well as other regulatory risks, act as an insurance policy and must be provided for exhaustively.

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Endnotes 1. A financial year in India is usually calculated from 1 April of the calendar year to 31 March of the following calendar year. 2. Anchor investors are defined as qualified institutional buyers (as defined under the SEBI ICDR Regulations, 2018) who make an application for at least US$ 1.4 million in an IPO. 3. SEBI (Framework for Rejection of Draft Offer Documents) Order, 2012. 4. SEBI (Issuing Observations on Draft Offer Documents Pending Regulatory Actions) Order, 2020.

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Arka Mookerjee Tel: +91 22 4341 8593 / Email: [email protected] Arka is a partner at J. Sagar Associates whose practice area covers diverse areas of corporate commercial law, including primary equity capital markets, foreign investments and acquisitions. He has over 10 years’ experience in advising key clients for primary offerings. He was part of the team which drafted the placement document for the first ever qualified institutional placement in the country and advised the clients thereof on the transaction. He was also a part of the team for the first ever public issue for non-convertible debentures and was also part of the team for the first initial public offering under the SEBI ICDR Regulations. He also led the team which filed the first ever draft red herring prospectus for an infrastructure IPO under the SEBI INVIT Regulations. Arka has represented issuers, underwriters and selling shareholders in various equity and debt capital market transactions and has also contributed articles to leading international publications. Arka is a member of SEBI sub-committee on REITs and InVITs. He is a member of Bar Council of Maharashtra and Goa, speaks English, Hindi and Bengali and achieved his B.SL. and LL.B. from the University of Pune, Symbiosis Law College, in 2006.

Pracheta Bhattacharya Tel: +91 22 4341 8597 / Email: [email protected] Pracheta is a principal associate at J. Sagar Associates who specialises in the areas of capital markets and securities law. He has more than a decade of experience in advising clients. He has advised domestic and international clients in capital markets and securities-related transactions. He has also advised clients on delisting of securities, mergers and acquisitions and general corporate commercial laws. Recent concluded capital markets transactions include the IPOs of Indian Railway Catering and Tourism Corporation Limited and RITES Limited, rights issue of Tata Sponge Iron Limited and the offshore bond issuance by Macrotech Developers Limited. He is also part of the team which filed the first ever draft red herring prospectus for an Infrastructure IPO under the SEBI INVIT Regulations. Pracheta is a member of the Bar Council of Maharashtra and Goa, speaks English, Hindi and Bengali, and achieved his B.A. and LL.B. from The West Bengal National University of Juridical Sciences in 2010.

J. Sagar Associates Vakil House, 18 Sprott Road, Ballard Estate Mumbai, Maharashtra 400001, India Tel: +91 22 4341 8600 / URL: www.jsalaw.com

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Barli Darsyah Indrawan Darsyah Santoso, Attorneys At Law

Introduction Publicly listed companies in Indonesia trace their origin back to the second half of the 19th century when the Dutch East Indies Government opened large-scale plantations in Indonesia. On 14 December 1912, the Amsterdam capital market (Amsterdamse Effectenbeurs) established a branch stock exchange in Batavia (Jakarta) for the trading of stocks and bonds of Dutch plantation companies operating in Indonesia.1 A new chapter began with the establishment of the Capital Market Executive Agency (locally known by its abbreviation, “Bapepam”) in 1976 which showed the strong commitment of the Indonesian Government to reviving the capital market industry. Bapepam took the role of both executor and supervisor of the capital market at that time and, in the following year, PT Semen Cibinong Tbk became the first publicly listed company, with a market capitalisation of IDR 2.73 billion (approximately US$ 192,250).2 Companies in Indonesia are mostly established and owned either by families or the Government, and an IPO is usually described as a solution to lack of capital and a way to create a heightened company profile. The appetite for Indonesian companies to go public is not driven by any specific industries, but rather by the need to access long-term funding with the readiness to comply with the requirements of financial transparency and beneficial ownership disclosure. It is also worth noting in this regard that floating shares on a public equity market is a way for some private companies with particular lines of business to be exempted from foreign ownership limitations, as set forth in the so-called “negative list”. This negative list is mentioned in a Presidential Regulation issued by the Indonesian Government, and updated from time to time on the basis of observing, among others, the business environment in Indonesia. Currently, the Indonesian Government is applying the 2016 Negative List, which determines and itemises the lines of business that are closed and conditionally open to foreign investments. For example, foreign investors may only own up to 49% shares of a private company in the land transportation services sector under the 2016 Negative List. In 2019, a company engaging in the land transportation services raised capital in an IPO and became a publicly listed company. Following the successful completion of the IPO, foreign investors would be able to own more than 49% shares in said publicly listed company via portfolio investment. As with the previous negative list, the 2016 Negative List provides that if portfolio investments are made in a domestic market, such investments will be exempted from the foreign ownership limitations. For tapping a large pool of foreign investors, it is market

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Indrawan Darsyah Santoso, Attorneys At Law Indonesia practice to interpret such provision by undertaking an IPO that will be followed by a listing on a local bourse, namely Indonesia Stock Exchange (“IDX”) (https://www.idx.co.id). IDX welcomed 55 IPOs with total fundraising of IDR 14.78 trillion (approximately US$ 1.04 billion) throughout 2019 against 57 of IDR 16.42 trillion (approximately US$ 1.16 billion) proceeds in 2018.3 The IPO scale in 2019, to some extent, reflected the strength of the Indonesian capital market despite the escalating presidential election tensions during that year. On the last trading day of 2019, IDX reached the top of the IPO list in Southeast Asia, followed by Thailand with 30 IPOs, Malaysia with 29 and Singapore with 11.4 IDX is the sole bourse in Indonesia and its equities market is split into three listing boards: the Main Board; Development Board; and Acceleration Board. The Main Board is intended for more established companies with a good track record in their operation, while the Development Board is intended for medium-sized companies that are in a development stage and not yet able to fulfil the listing requirements of the Main Board. The Main and Development Boards have long been established and then, in July 2019, IDX launched the so-called “Acceleration Board” for accommodating IPOs with more lenient standards on which companies, still experiencing losses or having no recorded profits, are allowed to make their stock market debut provided that they obtain operating profits (based on their financial projection) at the latest at the end of the sixth financial year after their listing – another attempt to encourage more IPOs by start-ups or small-sized companies. PT Tourindo Guide Indonesia Tbk, a digital tourism marketplace, raised around IDR 12 billion (approximately US$ 845.07 thousand) from its IPO and became the first start-up to list on the Acceleration Board in early 2020. With a population totalling around 260 million individuals as well as the increasing availability of inexpensive phones, Indonesia has a huge segment of young people, with over 100 million smartphones.5 The growth has been dramatic in the Indonesian digital industry (including the ride-hailing service Gojek as Indonesia’s first decacorn, and the emergence of multi-billion dollar Indonesian unicorns such as: digital payment service OVO; online travel agent Traveloka; e-commerce platform Tokopedia; and e-commerce platform Bukalapak), which makes IPOs attractive as an alternative funding and exit route for founders of, and investors in, start-ups. Although the Indonesian capital market authority, namely the Financial Services Authority (Otoritas Jasa Keuangan or “OJK”), allows foreign companies to undertake a securities public offering or cross-listing in Indonesia by way of the issuance of Indonesian depositary receipts, that corporate action is still challenging because the standards of prospectus and minority shareholders protection in their jurisdiction may not be equivalent to those in Indonesia, and there are no ready foreign companies in the pipeline up to now. To make it happen, IDX has been working on the closer harmonisation of listing rules with other bourses in the ASEAN region such as the Stock Exchange of Thailand.

The IPO process: Steps, timing and parties and market practice Pre-IPO reorganisation The decision for the IPO is normally made by the founders and management team of the IPO candidate, in consultation with the selected lead underwriter. One of the initial steps in getting ready for the IPO is that the lead underwriter will assess the position of the IPO candidate in its market and business sectors as well as its strength, commercial strategies and growth story.

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This will best help the IPO candidate to understand its IPO feasibility and meet the suitable listing qualifications of IDX. For example, IDX allows mid-size companies, conducting commercial activities for at least one year or having no profits, to make their stock market debut on the Development Board, provided that it will generate operating profits and net profits at the latest in the second financial year after the listing based on their financial projections. Given that it is critical to be ready to go when the IPO candidate’s results and capital market windows align, the following pre-IPO reorganisation is usually completed by the management team before (or immediately after) a kick-off meeting of the IPO: • transferring material assets out of or into the IPO candidate’s business group, where this is necessary to carry on the business group’s business operations that will be reflected in an IPO prospectus; • amending the IPO candidate’s Articles of Association in accordance with OJK’s requirements; • putting in place a corporate governance structure, including a board of commissioners with at least 30% independent members and various committees necessary to meet the standards of a publicly listed company; • establishing an effective system of internal control to support the reporting obligations of the IPO candidate post-IPO; • simplifying the capital structure; • hiring an investor relation officer; and • organising corporate documents in a data room for due diligence purposes. The pre-IPO reorganisation works within the IPO candidate’s business group involving a broad range of legal issues; for example, assets transfer may be subject to creditors’ approvals, or substantial shares transfer into the listing entity may trigger the strict procedure of an acquisition under Indonesian company law or require approvals from authorities. The appointed legal consultant has a key role in advising on the pre-IPO reorganisation plans and negotiating any pre-IPO investments. The IPO Timeline Depending on the size and complexity of the business, prevailing financial conditions and readiness assessment of the IPO candidate, the IPO and listing process can be completed within six months of the IPO kick-off meeting. The important steps on the road to IPO are summarised below:

Key Stages Typical Timeline Notes Every key person involved in the IPO – the management team and lead underwriter together with the appointed public accountant and legal consultant – will discuss the following: • offering structure and indicative timeline; Kick-off Meeting Day 1 • material disclosure and publicity restrictions; • action plans with each person in charge; • deliverables for IPO submission to OJK and IDX; and • anticipation of critical issues and untimely delays.

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Key Stages Typical Timeline Notes In parallel with the finalisation of due diligence, multiple drafting sessions with the management team are frequently organised by the lead underwriter to produce a preliminary prospectus and an abridged prospectus in compliance with the disclosure standards of OJK. Documentation Majority of the time is given to the more detailed review of Day 2 to 64 Drafting certain sections of the prospectus, such as management’s discussion and analysis (“MD&A”) and risk factors. In an Indonesian IPO with a Rule 144 A tranche, an industry consultant is normally appointed to help the IPO candidate prepare the industry section part of the offering document. The IPO candidate must submit a listing application together with its supporting documents to IDX on the same date as the submission of a registration statement to OJK. The main documents of a registration statement include, among others: Document Day 65 • a preliminary prospectus; Submission • an abridged prospectus; • a legal due diligence report and legal opinion; • a comfort letter from the public accountant; • audited financial statements; and • an underwriting agreement. OJK does not evaluate the merits of an investment in the IPO documentation, but rather focuses on whether OJK Comment Day 66 to 86 the disclosures reflected in the registration statement Letter provide investors with all the material information they need to make an informed investment decision. There is a maximum deadline of 10 working days for the IPO candidate to submit the revision of the submitted documents or to provide additional information in written Responding to form. OJK Comment Day 87 to 98 The registration statement will be deemed cancelled if Letter the IPO candidate fails to meet such deadline. The IPO candidate is also required to provide IDX with such revision or additional information for IDX’s assessment. The IPO candidate can only publish the abridged prospectus and simultaneously commence a bookbuilding Publication of process after OJK has given its approval to do so. the Abridged Day 99 to 100 The content of the preliminary prospectus is mostly Prospectus the same as for the final prospectus, excluding the final number of the offering size and the underwriting portions of each underwriter. The roadshow will facilitate the bookbuilding for the purpose of assembling a comprehensive picture of investors’ demand for the shares over a range of prices, Management with non-binding expressions of interest from the investors. Roadshow and Day 101 to 129 Bookbuilding The IPO candidate and all underwriters will amend the underwriting agreement to incorporate final numbers of the offering size and underwriting portions immediately after the completion of the bookbuilding.

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Key Stages Typical Timeline Notes The IPO candidate must confirm to OJK the final size of the offering and underwriting portions in order for OJK to issue a statement of effectiveness. The confirmation must be submitted to OJK seven Statement of Day 130 to 137 working days at the earliest or 21 working days at the Effectiveness latest after OJK has permitted the IPO candidate to conduct the bookbuilding. The registration statement will be deemed cancelled if the IPO candidate fails to meet this deadline. The offering period runs for a minimum of one anda maximum of five working days. If the shares offering Offering Period Day 138 to 148 is oversubscribed, an allotment must be made two and Allotment working days at the latest after the end of the offering period. The formal closing takes place by way of distribution of the IPO shares by the company against payment made by the lead underwriter, within two working days after Completion Day 149 to 151 the allotment. Finally, the company starts making its stock market debut on IDX one working day after the distribution of the shares.

Given the disruptive impact of the COVID-19 pandemic on corporate business activities, OJK has recently provided relaxation for the IPO process. In a normal situation, the effectiveness of an IPO registration statement must be obtained from OJK no later than six months after the date of financial statements in the IPO filing. OJK has now given a two- month extension from the original deadline with respect to the financial statements after 30 November 2019. In other words, it is possible for the registration statement to become effective up to eight months after the date of financial statements. Key parties • Management team All directors, members of senior management and key decision-makers of the issuer are heavily involved in the due diligence and verification meetings, preparation of the prospectus, roadshow presentation, as well as the necessary hearing with OJK for responding to the OJK comment letter. • Lead underwriter In an IPO where there is more than one underwriter, one of them must act as a lead underwriter. The lead underwriter plays a major role in all aspects of the share-offering process (including to: (i) assist an issuer in the preparation and submission of all appropriate materials to both OJK and IDX; (ii) set the timing of the roadshow or bookbuilding and the definitive price; and (iii) allocate the shares that other underwriters get to sell). If there are two or more lead underwriters, arrangements on the division of their responsibilities will normally be reflected in an underwriting agreement (including the role as an allotment manager). • Legal consultant The role of legal consultant includes advising on legal and regulatory matters, conducting due diligence and issuing a legal opinion, reviewing the prospectus, negotiating IPO agreements, and working alongside the management team and lead underwriter to provide further clarification to OJK regarding the legal aspects of registration documents.

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• Public accountant The public accountant is responsible for conducting an independent audit on the last three years of financial statements of the issuer that will be included in the prospectus or offer document. As a part of the submission documents to OJK, the public accountant also provides a “comfort letter” in which certain confirmations are included with respect to the financial information.

Regulatory architecture: Overview of the regulators and key regulations Main regulatory bodies • OJK: IPO activities in Indonesia are mostly dictated by OJK’s requirements, while the decision for companies listing is delegated to IDX. As for capital markets, OJK has released a series of rules regarding, among others, subsequent equity offerings, corporate governance and affiliated party and material transactions. Post-IPO, publicly listed companies must comply with such rules during their lifetime. OJK also has a role to regulate and supervise financial services activities not only in capital markets but also in banking and non-bank financial industries sectors. OJK carries out its functions through the exercise of its powers of investigation and enforcement to protect the interests of the public in financial sectors. • IDX: IDX, as a stock exchange, must comply with the rules and policies of OJK, especially those covering the function of IDX to provide infrastructures for listing and securities trading in a fair and an orderly manner. IDX also acts as one of the self- regulatory organisations through its listing and disclosure standards, and has the power to enforce the compliance of publicly listed companies with those standards. • Self-regulatory organisations: Because IDX adopts scripless trading transactions and settlements, an issuer must also enter into an agreement with the Indonesian Central Securities Depository (locally known as PT Kustodian Sentral Efek Indonesia or “KSEI”) for registration of all of its shares in the collective custody of KSEI. Key legislation and documentation The key laws and regulations for setting forth an IPO process are Law No. 8 of 1995 on Capital Markets (“Capital Market Law”) and its implementing rules issued by OJK. Securities offerings to the public in Indonesia must be registered with OJK, andthe document filed with OJK is a registration statement which contains the substantive disclosure requirements, as principally reflected in a prospectus. Other than OJK rules and as part of the IPO process, the IPO candidate seeking listing on IDX must also meet the listing eligibility under the requirements of IDX. Unlike the exempt US offerings to qualified institutional buyers QIBs(“ ”) under Rule 144 A, Indonesian IPO rules do not distinguish between different types of investor, treating institutional/sophisticated investors in the same way as individual/retail investors. Therefore, there are no exemptions for QIBs with respect to the registration requirement of the IPO. As an IPO candidate must comply with various legal requirements during the time-consuming IPO process, it is important that an experienced legal consultant with comprehensive understanding of local and international aspects of IPO and relevant industry knowledge is appointed to ensure the smooth completion of the listing. Prospectus The form and contents of the prospectus are driven primarily by the requirements of OJK to ensure that all material information therein is true, accurate and not misleading. OJK has

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Indrawan Darsyah Santoso, Attorneys At Law Indonesia pushed companies in the IPO process to make their quality of disclosure closer to standards in international/cross-border offerings. The MD&A and risk factors are some of the key sections of the prospectus that often receive attention in the OJK comment letter. The MD&A section must provide investors with a discussion comparing the financial condition and results of operations of the companies’ business group for the last three financial years (or since establishment, if less than three financial years). For the purpose of listing on the Acceleration Board, it is not mandatory to include such discussion covering the entire three-year period in the MD&A section. For the risk factors section, the companies should avoid a discussion of generic risks that mostly apply to any company in an IPO. Instead, OJK requires the companies to explain the materiality and the specificity of risk relating to the business and industry sectors in which the companies operate, and investment in the shares of the companies. It is not uncommon to find Indonesian companies getting allocation of funding from foreign investors including private equities through the issuance of pre-IPO convertible instruments. Caution should be exercised, as a post-IPO lock-up may be imposed on the shares received by investors on conversion of the pre-IPO convertible instruments. If the conversion price is lower than the IPO price, and the conversion occurs during a period of six months before the submission of a registration statement to OJK, the shares held by pre-IPO investors are subject to a lock-up period of eight months after the statement of effectiveness from OJK. Given any dilution impact on the shareholding structure of the company is essential for investment decisions on the IPO, the prospectus must include an explanation of the terms of the pre-IPO convertible instruments, and the total number of shares received by the investors upon full conversion of the outstanding pre-IPO convertible instruments. Each member of the company (including its directors and employees) and any relevant parties involved in the issue of the prospectus (such as lead underwriters) must prevent premature disclosure of the contents of the prospectus, as such premature disclosure may be viewed as making unauthorised securities offers, and expose the parties to civil and criminal liabilities. Under Indonesian law, the concept of a securities offering refers to all offers to sell, or invitations to buy securities. Publicity of the contents of the prospectus must be controlled tightly from the early stage of the IPO process until OJK grants its approval to the company. One could argue that the disclosure is intentionally made for an invitation to purchase the shares and therefore, the distribution of such prospectus does not go against the strict procedure of public offering. Listing criteria Only limited liability companies, established under Indonesian laws, may list their shares on IDX (as discussed below): (i) Main Board This listing board is intended for big companies seeking for listing on IDX and having, among others: • commercial activities within the same core business for at least 36 consecutive months and a recorded income for the last three years; • an operating profit for the last one financial year; and • net tangible assets (“NTA”) of at least IDR 100 billion (approximately US$ 7.04 million). NTA is calculated from total assets less intangible assets, tax-deferred interest assets, total liabilities and non-controlling interest.

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(ii) Development Board The Development Board accommodates medium-sized companies that are in the development stage (and in some cases, whose businesses either take a significant time to break even or still suffer losses). The Development Board is also positioned as a stepping stone to the Main Board. IDX allows a company that cannot meet the requirement of having NTA of at least IDR 5 billion (approximately US$ 352,110) to fulfil only one of the following requirements: • it has an operating profit for the last one financial year of at least IDR 1 billion (approximately US$ 70.42 thousand) and share capitalisation of at least IDR 100 billion (approximately US$ 7.04 million) before the listing date; or • it has an operating income for the last one financial year of at least IDR 40 billion (approximately US$ 2.82 million) and share capitalisation of at least IDR 200 billion (approximately US$ 14.08 million) before the listing date. The company must also demonstrate its commercial operational activities within the same core business for at least 12 consecutive months by way of having operating income for the last one year. (iii) Acceleration Board The Acceleration Board is a listing segment for small and medium-sized enterprises (“SMEs”) that undertake IPOs with a limited amount of fundraising (i.e. a maximum of IDR 250 billion (approximately US$ 17.61 million)). In terms of eligibility, SMEs with asset value not more than IDR 50 billion (approximately US$ 3.52 million) fall into the category of small-scale issuers, while SMEs with asset value in the range of more than IDR 50 billion (approximately US$ 3.52 million) but not more than IDR 250 billion (approximately US$ 17.61 million) fall into the category of medium-scale issuers. Both issuers must not be controlled by a company that has asset value of more than IDR 250 billion (approximately US$ 17.61 million), and/or controller of a publicly listed company that is not a small- or medium- scale issuer. IDX does not impose NTA or profit requirements on the SMEs. Their commercial operational activities are not limited to a certain period provided that they already have a recorded operating revenue in their latest financial year. Unlike the listing on the Main and Development Boards where normal companies must already put in place corporate governance tools (including independent commissioners, an audit committee and a corporate secretary), the SMEs are allowed to have such tools within certain months after completion of their IPO. For the Acceleration Board listing, the IPO shares can be listed at a minimum price of IDR 50 (approximately US$ 0.004) per share. This will not be the case for the listing on the Main Board or Development Board because IDX requires a minimum price of IDR 100 (approximately US$ 0.007) per share. Particularly, the shares of the SMEs held by controlling shareholders are subject to a lock-up period of six months as of the Acceleration Board listing date. More detailed information on the listing criteria of the Main Board, Development Board and Acceleration Board can be found on the IDX website. Given Indonesian company ownership normally leads to the formation of family-owned business groups, decision to list either a subsidiary of the specific business, or a parent entity of the entire business, on IDX should also be strategically assessed by the management team of an IPO candidate. The following could become part of the considerations: (i) the market valuation to be disclosed in the IPO; (ii) whether the inclusion of certain businesses may comply with the track record and financial requirements under IDX rules; or

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(iii) any available exemptions regarding transactions with affiliates, as discussed below under “Disclosure of affiliated party transaction”, if the business to be listed continuously depends on the involvement of companies that are part of the (family-controlled) business group.

Publicly listed company responsibilities Once listed, a publicly listed company must fulfil and maintain the following IDX requirements: (i) its minority shareholders must hold at least 50 million shares (not applicable for the Acceleration Board) and 7.5% shares of the total issued and paid-up capital; and (ii) it must have at least 300 shareholders with securities accounts. Post-IPO, the publicly listed company must ensure appropriate disclosure for its shareholders through periodical and incidental flow of information in a rigid timeline set out in OJK and IDX rules with respect to the following: Periodical reports The periodical reports generally cover: (i) Annual financial report The annual financial report must include audited annual financial statements accompanied by an external auditor’s opinion, and be submitted to OJK and IDX and announced in at least one Indonesian daily newspaper with a national circulation, at the latest at the end of the third month after the date of the annual financial statements. (ii) Interim financial report OJK requires the publicly listed company to submit a mid-year financial report to OJK and announce it in at least one Indonesian daily newspaper with a national circulation. The publicly listed company must also submit interim financial reports (i.e. the first and third quarter results, and a mid-year report) to IDX. If the interim financial report is: • unaudited, the deadline submission is at the latest at the end of the first month after the date of the interim financial report; • under limited review, the deadline submission is at the latest at the end of the second month after the date of the interim financial report; or • audited, the deadline submission is at the latest at the end of the third month after the date of the interim financial report. As an exception, SMEs listed on the Acceleration Board are not required to submit the first and third quarter results to IDX. (iii) Annual report The annual report serves as the board of directors’ and board of commissioners’ accountability report and generally includes: material financial highlights; material events affecting the shares (among others, stock split or suspension); report ofthe board of directors and board of commissioners; the company’s profile, corporate social responsibility and audited financial report; and management analysis of the company’s operations and financial performance. OJK specifically requires the publicly listed company to disclose the implementation of corporate governance in the annual report, for example, information on the performance of a nomination and remuneration committee, and an audit committee. The publicly listed company must submit the annual report to OJK and IDX at the latest four months after the end of the publicly listed company’s financial year. In light of the impact of COVID-19 developments on publicly listed companies, OJK and IDX have given relaxed requirements to them by giving a two-month extension from the

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Indrawan Darsyah Santoso, Attorneys At Law Indonesia original deadline. For example, the December year-end companies may submit their (i) annual financial report by the end of May 2020, and (ii) annual report by the end of June 2020. Incidental reports The publicly listed company must report to OJK and IDX, and make public any events, information or material facts that may reasonably affect the share price or investors’ decisions, preferably as soon as possible but no later than two working days after the events occur. The information or material facts include, among others: a change of direct/indirect control; an acquisition of significant contracts; a restriction on the publicly listed company’s business by relevant regulators; or a material litigation proceeding against the publicly listed company. Disclosure of affiliated party transaction Caution should be applied when the publicly listed company or a subsidiary of the publicly listed company enters into any kind of transaction (which would include, among others, a loan or assets transfer) with an affiliate of: (i) the publicly listed company; or (ii) the publicly listed company’s director, commissioner or principal shareholder (i.e. a party indirectly or directly owning at least 20% voting rights). To ensure the terms and value of the transaction with the affiliate are fair to the publicly listed company, it must obtain a fairness opinion from an independent appraiser registered with OJK. If the appraiser cannot issue the fairness opinion, one could argue that the transaction will be deemed as a conflict-of-interest transaction. As a general rule, a conflict-of-interest transaction cannot be entered into by a publicly listed company unless the transaction is approved by a general meeting of independent shareholders. OJK has recently provided the new definition of independent shareholders as shareholders that: (i) do not have any personal economic interest in the transaction; (ii) are not the director, commissioner, controller or principal shareholder; and (iii) are not affiliated with the parties listed in point (ii). Because not all transactions with related parties have the potential to lead to a conflict- of-interest situation, provided that the appraiser is able to issue a fairness opinion on the transaction, the transaction will be deemed an affiliated party transaction where the publicly listed company must disclose the transaction to the public and report it to OJK within two working days after the transaction occurs. It is mandatory to include a summary of the appointed independent appraiser report (including a fairness opinion) in that public disclosure. OJK allows certain affiliated party transactions, which do not need to be disclosed to the public and only need to be reported to OJK, at the latest two working days after the affiliated party transactions have been conducted. The transactions include, among others: (i) a transaction the value of which does not exceed 0.5% of the paid-up capital of the publicly listed company and does not exceed IDR 5 billion (approximately US$ 352.11 thousand); (ii) a transaction between the publicly listed company and its subsidiary whose shares are at least 99% held by it, or between subsidiaries whose shares are at least 99% held by it; or (iii) a transaction between the publicly listed company and its consolidated subsidiary whose shares are not entirely owned by the publicly listed company, and where none of the shares or capital of such subsidiary are owned by the publicly listed company’s directors, commissioner or principal shareholders, or their affiliates. For those transactions that only need to be reported to OJK, the publicly listed company is not required to obtain an independent appraiser report and a fairness opinion from the appraiser. In addition, there are also specific affiliated party transactions that are not required to be disclosed to the public and reported to OJK which include, among others: transactions that

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Indrawan Darsyah Santoso, Attorneys At Law Indonesia support the main business activity of a publicly listed company; or ongoing transactions that have been fully disclosed in an IPO prospectus. Disclosure of material transaction Under Bapepam-LK Rule No. IX.E.2 on Material Transactions and Change of Core Business (“Rule IX.E.2”), a material transaction refers to any transaction with a value of at least 20% of the publicly listed company’s equity conducted in either one or a series of transactions. The material transactions cover broad types of transactions conducted by a publicly listed company or its consolidated subsidiaries including, among others: leasing assets; lending or borrowing of money; or providing a corporate guarantee. Material transactions with values between 20% and 50% of the publicly listed company’s equity do not need to obtain approval from a general meeting of shareholders. However, the publicly listed company must disclose information on the material transaction (which should reflect a summary of the appointed independent appraiser report) to the public and OJK, at the latest two working days after the execution date of the agreement which stipulates the material transaction. A material transaction with a value exceeding 50% of the publicly listed company’s equity must obtain approval from the general meeting of shareholders. Caution should be exercised when conducting corporate actions in the near future because OJK recently issued Rule No. 17/POJK.04/2020 on Material Transactions and Change of Business Activities (“New Rule”) on 20 April 2020. Because most provisions under the New Rule will become effective on 21 October 2020, Rule IX.E.2 still applies to publicly listed companies before that date. One of the main provisions under the New Rule introduces new thresholds for the acquisition or disposal of a company or business segment as follows: (i) the transaction value is at least 20% of the publicly listed company’s equity; (ii) the total assets constituting the transaction object divided by the publicly listed company’s total assets is at least 20%; (iii) the net profit from the transaction object divided by the publicly listed company’s net profit is at least 20%; or (iv) the operating revenue from the transaction object divided by the publicly listed company’s operating revenue is at least 20%. The New Rule also introduces a requirement of having independent shareholders’ approval if the material transaction could disrupt the business continuity of the publicly listed company. For example, the material transaction (i) reduces at least 80% in the operating revenue of the publicly listed company, or (ii) causes net loss, on a pro forma basis. Substantial shareholding reports Accumulation of a significant share ownership in a publicly listed company triggers a reporting obligation to OJK. A party, directly or indirectly holding 5% or more shares in a publicly listed company, must submit a share ownership report to OJK no later than 10 calendar days after the relevant party effectively acquires ownership of the shares. This deadline also applies to the subsequent reporting. This share ownership report will be available to the public to alert minority shareholders to material changes in the ownership structure of the publicly listed company. Any party that holds at least 5% of shares is also required to submit the report to OJK if there is a subsequent change of the party’s share ownership, through a single transaction or a series of transactions, equivalent to at least 0.5% of shares.

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The obligation of reporting to OJK also applies if the directors or commissioners of a publicly listed company hold any shares directly/indirectly in that publicly listed company.

Potential risks, liabilities and pitfalls If the registration statement documents of an IPO (including prospectus) contain false material information or do not include material information and this causes misleading information, the following parties shall be jointly and severally held liable: (i) each party that signs the registration statement; (ii) the issuer’s directors and commissioners at the time the registration statement becomes effective; (iii) the lead underwriters; and (iv) the capital market supporting professionals (e.g. legal consultant, public accountant, appraiser) and other parties that have consented to provide an opinion or information included in the registration statement. To file a claim for any losses caused by misleading information in the IPO, an investor may submit a claim within five years after the effective date of the registration statement. The lead underwriters or capital market supporting professionals will not be held liable to compensate for any investors’ losses, provided that: (i) they have made evaluations and issued opinions included in the registration statement professionally and with due diligence to verify statements and information in accordance with the principles and codes of ethics of their profession; and (ii) their opinions and evaluations were made independently. Criminal liabilities in relation to misleading information in the IPO will also arise, as set forth in the Capital Market Law. A party guilty of providing information which is false in material respect shall be punishable with imprisonment for a maximum of 10 years, and a maximum fine of IDR 15 billion (approximately US$ 1.06 million).

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Endnotes 1. Indonesia Stock Exchange, IDX Annual Report 2012, p.5, https://www.idx.co.id/ media/1207/2012.pdf. 2. Jakarta Stock Exchange, JSX Annual Report 2003, p.54, https://www.idx.co.id/media /1214/2003.pdf. 3. “Perdagangan Saham Tahun 2019 Ditutup dengan Menyongsong Optimisme Tahun 2020”, IDX Press Release Detail, 2019, https://www.idx.co.id/en-us/news/press- release-detail/?emitenCode=1201. 4. “JCI ends in red on last trading day”, the Jakarta Post, 2019, https://www.thejakartapost. com/news/2019/12/31/jci-ends-red-last-trading-day.html. 5. “Warning on Unicorn IPOs”, the Jakarta Post, 2019, https://www.thejakartapost.com/ academia/2019/03/04/warning-on-unicorn-ipos.html.

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This chapter is up to date as of 21 April 2020.

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Barli Darsyah Tel: +62 21 250 6737 / Email: [email protected] Barli is the Partner leading the Securities practice at Indrawan Darsyah Santoso. His practice covers the whole spectrum of equity and debt transactions, including IPOs, offshore securities offerings, rights offerings, bonds issuances, joint ventures, public M&As and tender offers. He has also advised numerous listed companies in connection with their related-party transactions involving conflicts of interest, material transactions and mandatory disclosure issues. His practice also encompasses corporate governance. He advises the boards and management of listed and securities companies, as well as investors, on all aspects of compliance with securities laws and regulations in Indonesia. He is a member of the Indonesian Advocates Association (PERADI) and the Indonesian Association of Capital Market Legal Consultants (HKHPM).

Indrawan Darsyah Santoso, Attorneys At Law Sona Topas Tower 15th floor, Jalan Jenderal Sudirman Kav 26, Jakarta 12920, Indonesia Tel: +62 21 250 6737 / Fax: +62 21 250 6738 / URL: www.idsattorneys.com

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Marco Lantelme BSVA Studio Legale Associato

Introduction An initial public offering (“IPO”) of a company’s shares – referred to in this chapter as “stock” – is, in Italy, as in most jurisdictions, a key way to raise capital. Structurally and from a documentary perspective, IPOs in this market are very similar to those made in other jurisdictions. Stocks are listed on the Italian Stock Exchange, part of the London Stock Exchange group since 2007, albeit possibly subject to a spin-off in the future. Their regulatory framework has progressively become similar. The Italian Stock Exchange allows for the possibility to list on the main market (“MTA”), or on a multilateral trading facility, such as AIM Italia (“Alternative Investment Market Italia”). Other regulated market segments are available, the main ones being STAR, a stock segment with higher compliance requirements for medium-size companies, and MIV, the market segment on which investment vehicles are listed. Foreign companies access the Global Equity Markets segment. The general framework has also aligned over the years to other European jurisdictions, mainly due to the adoption of a regulation at EU level on prospectuses, lately contained in EU Regulation 2017/1129 that has superseded in full since 21 July 2019, the previous framework made of EU Directive 2003/71/CE, EU Regulation 809/2004 and their related rules. The EU framework on prospectuses and offering of securities has now become the main source of rules, while jurisdiction-specific features issued by the Commissione Nazionale per le Società e la Borsa (“CONSOB”) have been progressively limited. CONSOB’s discretionary powers, such as introducing temporary stakeholding thresholds on notice requirements or temporary prohibitions on short sales,1 are still permitted by the rules, as in other EU countries. Market practices that have consequently developed are very much in line with practices more widely shared in the other main EU jurisdictions. Subsequent public company obligations have also moved very much closer to the other main European peers, although some country-specific rules can be found, most notably in the corporate governance context, with a comprehensive set of related party transaction rules and on gender parity, respectively regulated by CONSOB Regulation 17221/2004, as amended, and Law 120/2011.2 Strict interlocking arrangements have also been imposed by Article 36 of Law Decree 201/2011,3 as implemented by joint guidelines issued by Banca d’Italia, CONSOB and IVASS on 20 April 2012, and as more recently extended.4 In 2020, at the time of writing, the only new listing has been on AIM Italia. In 2019, there were 35 new listings, four of which were on the MTA and 31 on AIM Italia. AIM listings generally do not involve a public offering. €2.5bn in aggregate was raised in 2019, and by the end of 2019, there were 375 listed companies on the Italian Stock Exchange, with an overall capitalisation of €651bn (with an increase of 20.1% compared to the end of 2018) of

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© Published and reproduced with kind permission by Global Legal Group Ltd, London BSVA Studio Legale Associato Italy which 242 were listed on the MTA, 78 listed on STAR, one on MIV and 132 on AIM Italia. Average daily trading was approximately €2.2bn, with 256,000 contracts exchanged daily (source: Borsa Italiana). In 2018, there were 31 new listings, four of which were on the MTA, one on MIV and 26 on AIM Italia. €2.0bn in aggregate was raised in 2018. In 2017 and 2016, there were 32 and 14 new listings, which respectively raised €5.4bn and €1.4bn in aggregate. A trend that has now mostly come to an end saw between 2017 and 2019 the listing of SPAC companies, i.e. shelf companies that, upon raising capital with a listing, will subsequently identify target companies to invest in and merge with the target. Forthcoming IPOs in Italy are likely to be principally for companies to be listed on AIM Italia or on the STAR segment, also due to the rules on individual investment plans (“PIRs”)5 having now been revisited.6 These are aimed at increasing and channelling retail investor appetite for Italian medium-size companies, whether through a direct investment or, most likely, through funds – such as UCITS – that also target such companies. Consequently, to tap the need of new companies being potential targets of new investments with a PIR, the market has focused more on seeking listing for them, while technically all companies not falling within the FTSE MIB index may qualify for that purpose. A high number of medium-size companies are regarded as perfect targets for new listings. PIR-driven investments are focusing more on the investor community of medium-size companies, while the majority of activity and analysis has been by targeting large companies. This is prompting further changes to the PIR framework to further convey investments on Italian medium-size companies. Tax incentives have been introduced since 2018, as a form of cost deduction for tax purposes, to incentivise stock-exchange listing. More specifically, small and medium-size companies that make an IPO with listing on a regulated market or on a multilateral trading system of an EU Member State or of the EEA, benefit from a 50% tax credit over the costs of the advisers for the IPO. This applies up to a maximum of €500,000, within an annual yearly limit set for the market as a whole. Small and medium-size companies, for these purposes, are defined in EU Commission recommendation 2003/361/EC as those with no more than 250 employees and a maximum turnover of €50m or a total annual balance sheet of €43m. The tax credit has a total limit for the whole equity market of €30m for both 2020 and 2021. Companies in each year may take advantage of such tax credit for the unused portion by the market. Upon full use by other companies in a given year, no tax credit is available. The above expenses may be offset against taxes due for the same tax year. The tax credit is effective starting from the tax period following that in which the admission to listing was obtained and must be indicated in the tax returns for the years in which it is offset. Detailed implementing provisions are set in second level rules. Related party transaction rules differentiating between major transactions and minor transactions, and requiring qualified majority approval for the former, are increasingly impacting upon management practice for medium-size companies, whereby founders and main shareholders are increasingly sharing roles. The years between 2017 and 2019 have shown one of the strongest trends towards IPOs in the last 25 years, albeit mostly for small and medium-size companies and not for large companies. Currently the market in 2020 at the time of writing is at a standstill. Italian companies seek listing for reasons that are very much the same as in other jurisdictions: in short, among others, to increase their visibility both domestically and internationally; to gain better access to capital markets in Italy and abroad; to invest in new areas of business or to enhance their current business activities; and to create value for shareholders.

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Current regulatory schemes and market practices are conducive to going public, particularly after having been comprehensively revised with the adoption of the EU Rules that mostly harmonise them at EU level. Companies going public are either medium-size companies seeking growth or large companies, often State-owned, seeking diversification of stockholders. In general, both companies in productive sectors and companies in the financial sector, such as banks, have sought listing in recent years.

The IPO process: Steps, timing and parties and market practice The basic timetable and process for going public may be better summarised in the following chart, which outlines the steps of a typical timeframe, starting with the decision to go public, to completion, assuming that there is no delay in seeking approval of the prospectus.

Admission to Listing – Open Price Bookbuilding Offering

Month 1 Month 2 Month 3 Month 4 Month 5 Kick-off Meeting Economic, Financial and Legal Due Diligence Prospectus Drafting and Updating Share Capital Increase Shareholders’ Resolution Deposit of Draft Prospectus with CONSOB and Borsa Italiana Review by CONSOB and Borsa Italiana CONSOB Approval and Publication of the Prospectus Listing Admission by Borsa Italiana Setting up Underwriting and Placement Syndicate Marketing (meeting with analysts, research reports and roadshow) Bookbuilding Fixing the Maximum Price Public Offering to Sell and to Subscribe Fixing the Offering Price Starting Stock Trading Stabilisation Activity

The parties commonly involved in an IPO are the following: • The issuer, being the entity whose stocks, and other financial instruments, if any, are to be listed. • The offering party, which may in turn be: The placing entity of the public offering, i.e. the entity that organises and constitutes the underwriting syndicate and which normally qualifies as sponsor or specialist (as such, being a bank or an EU or an extra-EU investment company or a financial intermediary). It is responsible for the underwriting/placement of the stock and for managing the syndicate in the public offering. It releases declarations/statements/ notices to CONSOB. In performing these activities, it qualifies as global coordinator. The global coordinator that coordinates all the listing and offering processes and is responsible for: (i) managing and selecting the members of the underwriting syndicate; and (ii) coordinating the syndicate’s activities during the offering period.

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• Dealers and brokers • The issuer’s main advisors are: The financial advisor that cooperates with the issuer and the other parties in performing the feasibility study, drafts the prospectus and the offering circular with the law firm, and draws up the budget, business plan and the Quotation Management Admission Test (“QMAT”, Italian broker certification). It may also assist offering shareholders, if any. The law firm (or legal advisers) that are appointed by the global coordinator/sponsor to advise the parties involved as to the prospectus and offering circular by drafting them, to carry out the due diligence and the performance of all other legal requirements including by-laws updating, drafting board minutes and minutes of shareholders’ meetings, together with producing all relevant agreements instrumental to the offering (underwriting/placement agreements, lock-up agreements and legal opinions). • The issuer’s other advisors are: The auditors, who are responsible for audit of the accounts. They shall also check the issuer’s internal procedures, including allowing the issuer’s management a sufficiently exhaustive overview of its economic and financial situation and on the forecast data production so that the sponsor may release the comfort letters necessary to filing with Borsa Italiana/CONSOB. A tax advisor to be in charge of the relevant fiscal issues and the relevant sections of the prospectus. A communication company to manage the issuer’s profile and its relationship with the press. It has a crucial role in the marketing phase of the offering. The bookrunner to keep the records of investment orders upon offering/placing. • Specialist roles required by the listing regulations are: A specialist who is appointed for listing in the STAR segment in order to ensure liquidity of the listed stock by continuously offering an offer price of the stock. After listing, the specialist shall: • upon release of half-yearly and yearly results of the issuer, publish at least two financial analyses per year to the issuer, the first to be complete and the following for update; • publish a short analysis when interim information is released and upon occurrence of any major company event of the issuer; and • set up and take part in, at least twice a year, a meeting between the issuer’s management and the financial community. The sponsor, appointed mandatorily, to assist the issuer during the listing process. The appointment shall be made before the date on which the request for admission to trading is filed at Borsa Italiana. The sponsor is to act as the financial intermediary that ascertains for the market that: (i) the information contained in the prospectus is accurate; and (ii) all requirements provided for the listing are fulfilled. It also releases declarations/statements to Borsa Italiana and to CONSOB. After listing, the sponsor shall (when not handled by the specialist): • upon release of half-yearly and yearly results of the issuer, publish at least two financial analyses per year to the issuer, the first to be complete and the following for update; • publish a short analysis upon occurrence of any major company event of the issuer; and • set up and take part in, at least twice a year, a meeting between the issuer’s management and professional investors.

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One of the steps in the IPO process that is idiosyncratic is CONSOB prospectus approval, which calls for close scrutiny by the regulator based on the EU Rules and on CONSOB framework.

Regulatory architecture: Overview of the regulators and key regulations The governmental bodies, self-regulatory organisations and public stock exchanges responsible for regulating IPOs • CONSOB, in charge of regulating and supervising securities markets and issuers. It is competent for approval of listing and offering prospectuses. Regulation No 11971/1999 (as defined below) regulates its activity, by providing for, inter alia, the information to be included in the prospectus that now is set under EU Regulation 2017/1129, the documents to be filed and the notices to be released to the public before and after listing or offering. • Borsa Italiana, the self-regulatory organisation that manages the stock market. It is competent for the admission to listing, to set the issuing period and the starting date for trading of the stock. Its activity is regulated by its regulation and market instructions, which are previously approved by CONSOB. It sets the documents to be part of the listing admission request. • Monte Titoli, the company – part of the Borsa Italiana group – through which the stock is held in dematerialised form within a centralised management system. All companies listed on Borsa Italiana have their listed securities held through Monte Titoli. • Banca d’Italia, the supervising authority for credit institutions which may request such entities issuing or offering financial instruments to release periodic notices, data and information. It has, in general, a marginal role in the IPO, with an involvement only in subsequent reports notices as to issued or offered financial instruments. In addition, at EU level, ESMA is in charge of developing, among others, regulatory technical standards. The key rules and regulations applicable to the IPO process and key documents The legal and regulatory framework is primarily set by: First-level rules • Legislative Decree No. 58 of 1998 as amended (the Italian Consolidated Financial Act, or “TUF”); • Legislative Decree No. 385 of 1 September 1993 as amended (the Italian Consolidated Banking Act, or “TUB”); and • Italian decrees and laws implementing the EU Rules by amending the TUF and the TUB. EU Rules • Regulation (EU) No 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; • Directive 2001/34/EC of 28 May 2001 on the admission of securities to official stock exchange listing and on information to be published on those securities; • Directive 2010/73/EU amending Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading, and Directive 2004/109/ EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market; • Directive 2013/50/EU of 22 October 2013 amending Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market; and

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• Directive 2007/14/EC of 8 March 2007 laying down detailed rules for the implementation of certain provisions of Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market laying down detailed rules for the implementation of certain provisions of Directive 2004/109/EC. Also relevant are the following additional side rules: • Directive 2014/59/EU of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Directive 82/891/ EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012 – in relation to which the bail in risk of the issuer is to be considered in the prospectus; • Regulation (EU) No 2014/1286 of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (“PRIIPs”); • Regulation (EU) No 2014/596 of 16 April 2014 on market abuse (“market abuse regulation”) and repealing Directive 2003/6/EC and Directives 2003/124/EC, 2003/125/ EC and 2004/72/EC; and • Regulation (EU) No 2016/679 of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (“General Data Protection Regulation”). Second-level rules • CONSOB Issuers’ Regulation 11971 of 1999 as amended (“Regulation 11971/1999” or “Issuers Regulation”) partially implementing the TUF; • CONSOB Related Parties Transaction Regulation 17211 of 2004, as amended;7 • Regulation of the Organised Markets Managed by Borsa Italiana S.p.A. as amended (“Borsa Regulation”); • Borsa Regulation instructions, as amended; and • other regulations and instructions by Borsa Italiana, such as those on AIM Italia. Other second-level rules • CONSOB Intermediaries Regulation 20307 of 2018, partially implementing the TUF; • CONSOB Market Regulation 20249 of 2017, partially implementing the TUF; and • an extensive set of point-specific recommendations and notices issued by CONSOB. Key legal documents applicable to the IPO process are the following: The (listing and offering) prospectus, the document drafted under EU Rules in order to inform public investors. It shall be compliant with, among others, the following main rules: • must published in advance with prior approval by CONSOB; • it may be on a single document or constituted by different ones, those being: (i) the registration document; (ii) the securities note containing the information notice on the financial instruments and the offered products; and (iii) the summary; • it shall be concise and presented in an easily analysable and comprehensible form; • the summary of the prospectus is to be short and in a non-technical language in order to give the key substantial information on the financial products (and in relation to the issuer), with an exclusion in principle for liability arising from the summary itself. The summary shall be written in a concise manner and of a maximum length of seven sides of A4; • investors that have already accepted to purchase or subscribe to financial products before a prospectus supplement is published, have the right to revoke their acceptance within two days following the new publication with the facts, errors or inconsistencies before the final closing of the public offering or of the delivery of the financial products; and

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• frequent issuers may file a universal registration document containing the issuer’s information lasting for 12 months. Such document may be approved by the authority, for two consecutive years. After such period, it can be issued without prior approval and with ex-post verification given that the issuer is to be considered well-known to the competent authority. Exemptions apply to the offering of securities to the public. Among others, offers of equity securities to fewer than 150 natural or legal persons, or with a €100,000 denomination per unit amount, or below €8m over a period of 12 months, are exempt. Small and medium-sized enterprises (“SMEs”) (under the EU Rules) and other specific entities having no securities admitted to trading on a regulated market may also issue an EU growth prospectus under the proportionate disclosure regime. The prospectus shall be made up of, among others, a summary together with a registration document, highlighting the risk factors and information as to financial instruments, offering conditions and expenses. The prospectus may be on a single document or constituted by different ones, those being: (i) the registration document; (ii) the information notice on the financial instruments and the offered products; and (iii) the summary. The summary of the prospectus is to be short and in non-technical language in order to give the key substantial information on the financial products, with an exclusion in principle for liability arising from the summary itself. Investors that have already accepted to purchase or subscribe to financial products before a prospectus’ supplement is published, have the right to revoke their acceptance within two days following the new publication with the facts, errors or inconsistencies before the final closing of the public offering or of the delivery ofthe financial products. CONSOB is competent for regulating the internal decision processes aimed at adopting the final decision for the approval of the prospectus. The offering circular being the offering document for institutional investors produced in English in the customary international practice. The prospectus and the offering circular, if any, are drafted on the basis of the due diligence that is coordinated by the sponsor and is aimed at verifying all information on the issuer and its group. Normally, it is split into: • Management due diligence, focusing on the issuer to know its main business features, both operative and financial, and the strategic plans for the future. • Legal due diligence, carried out by the legal advisors and aimed at verifying all aspects with a legal, contractual and regulatory relevance. • Financial due diligence, aimed at verifying the reliability and sustainability of the financial data and their accurate representation in the offering documents. The sponsor and the advisors are responsible for the information in the offering documents being correct. The Quotation Management Admission Test (“QMAT”). This is a document containing quantitative data of the issuer set in a prescribed format and produced by the sponsor with the aid of the issuer.

Business plan/budget/certified accounts The underwriting agreements. There are normally two: one for the public offering; and one for the institutional offering. They may or may not provide for underwriting of the stock, depending on the kind of offering.

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The agreements entered into in conjunction with the IPO may also contain two types of lock-up clauses (which are also summarised in the prospectus): • Mandatory: for issuers that have been carrying out their activity for less than three years and are requesting a listing on the MTA. The proposing shareholders (and others such as directors and managers) that have purchased to-be-listed-stock in the 12 months prior to the date on which the request was filed, undertake, for one year starting from the listing date, not to sell, offer, pledge and, in general, not to perform any transaction relating to at least 80% of such stock. • Voluntary: the above shareholders (or directors and managers) undertake not to sell, in full or in part, their stocks for a given period of time, often two years. The type and extent of disclosure that must be presented to prospective investors in an IPO is set by the EU Rules. Additional information that is customarily added relates to financial information, in case of extraordinary transactions involving the issuer or the group, whereby pro forma financials are added to give a comprehensive representation of the issuer and its group. For listing on the MTA, this will typically cover the last three calendar years prior to listing, although not necessarily always required. As to rules and regulations not applied uniformly to all IPOs, with different types of issuers being subject to different requirements or restrictions, it is worth noting the STAR segment and AIM Italia. STAR STAR is subject to more stringent requirements. STAR is the market for medium-size companies seeking a high profile with a capitalisation between €40m and €1bn. Companies listed in this segment undertake to fulfil specific, more stringent obligations compared to the general ones as to liquidity, information transparency and corporate governance. This segment is aimed at leveraging medium-size companies, with revenues between €100m and €1bn. In particular: • High transparency and communication: besides the accounts and yearly and half-yearly information, the four quarterly reports are also to be published within 45 days and all available company information is to be published on the issuer’s website in both Italian and English. The issuer shall also appoint an investor relator. • Stock high liquidity: minimum free float of 35% – including greenshoe stocks up to a maximum of 10% of the value of the offering – for newly listed companies, and of 20% for already-listed companies. • Corporate governance: the issuer shall, as a general rule, consistently observe international management best practice and, in particular, shall also adopt and act according to the corporate governance principles set out in the self-regulatory code on corporate governance (e.g. appointment of independent directors, an internal control system, incentive remuneration for directors and managers providing for a variable component depending on the company’s results, etc.).8 AIM Italia AIM Italia is a multilateral trading facility, dedicated to Italian SMEs willing to invest in their growth. AIM Italia is subject to considerably less stringent requirements. It is inspired by the parallel AIM facility at the London Stock Exchange and it provides for simplified listing procedures and a more flexible admission process, aimed at facilitating the financing of Italian or foreign SMEs.

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Changes There are currently no impending changes to the regulatory architecture, while implementation of the EU Rules, also with secondary level regulation, has been mostly achieved. The regulatory framework has improved considerably over the years, also due to a consistent input by the regulator, at national level. The prospectus framework has considerably changed and has been simplified, with the new prospectus regulation set by Regulation (EU) No 2017/1129 constituting directly applicable EU Rules in each Member State. In light of the changes brought about by Regulation (EU) No 2017/1129, the TUF is currently also under review for amendments to better align it to such regulation. At EU level, the European Securities and Markets Authority (“ESMA”) is increasingly influencing the shaping of new rules (also by issuing recommendations, technical standards and Q&As), while the regulator operating at national level for Italy is CONSOB. The most significant market practice that impacts how IPOs are conducted, partly reflected in the rules, is on the stabilisation activity. This is conducted through the exercise of a greenshoe, with an over-allotment option, for up to 15% more stock than the original volume set by the issuer, in order to stabilise the listing price after trading on the stock has commenced. This is the commonly used practice, in the same form as in other jurisdictions such as the US and the UK. The other main practice developed over recent years, relating specifically to AIM Italia, is to produce only a listing prospectus with an offering in the primary market, addressed only to institutional investors. This enables listing to be sought by producing a listing prospectus which does not require CONSOB approval as such, making the whole process relatively straightforward.

Public listed company responsibilities Obligations imposed on public listed companies that do not apply to private companies include corporate governance rules, disclosure to the market of price-sensitive information, interlocking rules, gender parity rules and having periodic research reports produced relating to the issuer. Different market segments may provide for further specific rules to apply. Periodic reporting requires publishing yearly and half-yearly accounts. TUF provisions in this context have allowed measures to be introduced at national level that impose a requirement to publish more frequent periodic information. CONSOB, however, has not exercised any discretion by imposing such requirement, but has issued general rules in case quarterly results are published. Disclosure requirements mainly focus on disclosing any information that may be considered relevant to the price of the stock. Holding stock of a listed issuer triggers on the holder a disclosure requirement to the issuer and to CONSOB, if the following percentages, whether by increasing or decreasing the shareholding stake, are hit: 3% (not applicable to SMEs); 5%; 10%; 15%; 20%; 25%; 30%; 50%; 66.6%; and 90%. An exemption applies for a stakeholding below 5% for entities that subscribe or place stock by underwriting it. Several rulings have been issued by CONSOB which clarify, inter alia, that physically settled derivative instruments of a listed company must be disclosed when entered into if the above thresholds are hit. The 3% and 5% thresholds have been temporarily lowered by CONSOB.9

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As to corporate governance standards, most of the main listed companies have adopted a self-regulatory code issued by a corporate governance committee representing many issuers, published by Borsa Italiana and updated from time to time, the last time being – in a very simplified form – December 2019. A report on the issuer’s corporate governance is to be issued yearly, based on the comply or explain principle.

Potential risks, liabilities and pitfalls Potential risks that should be addressed during the due diligence process, in addition to ascertaining that the prospectus provides an accurate description of the issuer by focusing also on all critical aspects, may include ascertaining that there are no hidden liabilities in general and vis-à-vis tax authorities. Risks for an increase in the company tax bill may simply occur, for example, by increased charges as a consequence of the revaluation by the authority of the asset value of real estate assets of the issuer, or other technical reasons. The impact of split payment rules regarding VAT to be paid to FTSE MIB companies is also to be assessed if a to-be-such company is considered. On top of the tax aspects, other risks may be more properly identified and addressed as the due diligence process is being performed. Legal liabilities and penalties associated with going public mainly relate to misleading information in the prospectus. It is mandatorily required for the issuer and the global coordinator to sign the prospectus in order to be fully accountable if it were to contain non- accurate information. This is the liability that may arise during the IPO process. Auditors may also be responsible if the information relates to the financials. Liability that may arise after a company is listed mainly relates to non-disclosure of price- sensitive information, or by not properly following related party transaction rules, in entering into transactions with certain related parties. To the extent an investigation is started by CONSOB in this respect, a sanction is likely to follow. Cases where the regulator has been prepared to put aside a case are few. Strict observance is highly recommended. Common missteps and pitfalls during the IPO process are for the management not to fully address the importance of the information to be inserted in the prospectus, and consequently to be lax in the drafting process. Management should devote sufficient time and importance to the process by not delegating it to operatives within the issuer. Liability risk may otherwise be increased due to inaccurate information, and the prospectus may also become less useful for its purposes. While in recent years a significant number of companies have adopted the Italian self- regulatory code for listed companies, common missteps and pitfalls for listed companies after becoming public include not fully adopting corporate governance rules with allocation of responsibility between, for instance, the CEO who should be running the business and the chairman who should be in a more coordinating role, not directly involved in operational activities. Another pitfall is the selection of directors, often chosen on the basis of links with the shareholders and not necessarily for their specific expertise. Nomination committees provided by the self-regulatory code typically identify candidates only for substitution of board members but not for new appointments, this being regarded as one of the main pitfalls of the rules, albeit reflecting a specific corporate culture. Borsa Italiana has developed a programme for companies to get closer to the capital markets environment, which also addresses these issues. The programme is named Elite, which non-listed companies may apply to in order to prepare themselves to access funding through the capital markets. At the time of writing, there are 1,430 companies in Elite

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© Published and reproduced with kind permission by Global Legal Group Ltd, London BSVA Studio Legale Associato Italy from 45 different countries (840 companies of which are Italian), which together generate a combined turnover of over €100bn per year, with over 578,000 employees and in 36 different sectors (source: Borsa Italiana). Some of them, after some years of tutoring under Elite SpA, a group company of Borsa Italiana SpA, end up being listed, either on AIM Italia or on the MTA. Others may never list, while some may seek funding through other means, such as by issuing bonds, through private equity or venture capital or through a club deal arrangement run by Elite, but without going through an IPO and listing process. The programme has been very successful. Detailed rules on listing have been simplified under Regulation (EU) No 2017/1129 and have been harmonised in the EU. This should also streamline the requirements for moving from AIM Italia to the MTA, a step taken in recent times by a number of companies growing bigger, but which has proved to be quite cumbersome to date. Having simplified prospectus and listing rules should ultimately enhance the market.

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Endnotes 1. The most recent one is with CONSOB Resolution No. 21303 of 17 March 2020 providing for a ban on short selling on the Italian Stock Exchange from 18 March 2020, for approximately three months. 2. Law No. 120 of 12 July 2011 has introduced new Article 147-ter, para 1-ter of TUF (as defined below), under which at least one-third of the board members are to be of the least represented gender. A correspondent rule for the board of statutory auditors is set at Article 148, para 1-bis. However, the above TUF provisions have been amended by providing that such rules shall be extended from three consecutive appointments, otherwise due to expire in 2020, to six consecutive appointments. Such new rules on gender parity were finally set by para 302–304 of Article 1 of Law No. 160 of 27 December 2019 (the Budget Law), effective from 1 January 2020. These rules prescribe for listed companies that the least represented gender must represent at least two-fifths (instead of the previous one-third) of elected representatives. The rule was also set in CONSOB Regulation 11971, Article 144-undecies.1, para 3, under which, in addition, with the first renewal of the board after listing of newly listed companies, the least represented gender may represent just one-fifth of elected representatives. An equivalent rule was also set for the board of statutory auditors. The two-fifths rule was also to be applied for the board appointments in 2020. However, as most of the board of statutory auditors and some of the board of directors have only three members, a practical problem arose as there cannot be two-fifths of three members. To resolve this, CONSOB issued Notice No. 1/2020, stating that when the two-fifths rule cannot be applied, the number may be rounded down, provided that rounding up to the highest number occurs in all cases when the board has more than three members. This means that for a three-member board, the least represented gender will only have one member appointed. 3. Under Article 36 of Law Decree No. 201 of 6.12.2011 converted by Law No. 214 of 22 December 2011, as implemented by the joint guidelines issued by Banca d’Italia, CONSOB and IVASS on 20 April 2012, and as amended and updated on 21 December 2018 pursuant to Article 1, para 177 of Law No. 124 of 4 August 2017. 4. On 21 December 2018 pursuant to Article 1, para 177 of Law No. 124 of 4 August 2017, under which there is a prohibition of interlocking when at least two undertakings

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(or groups of undertakings) in which a person holds positions have a national turnover of more than €30m each. 5. For an analysis, please see Lantelme M., ‘PIR: Individual Savings Plans’, JIBLR – Journal of International Banking and Regulation, London, 2017, Volume 32, Issue 8. 6. Under Article 13-bis of Law Decree No. 124 of 26 October 2019 converted by Law No. 157 of 19 December 2019. 7. For an analysis, please see Lantelme M., ‘CONSOB Regulation 17221 of March 12, 2010 on Related Party Transactions’, JIBLR – Journal of International Banking and Regulation, London, 2010, Volume 25, Issue 8. 8. For an analysis, please see Lantelme M., ‘The Italian Self-Regulatory Code for Listed Companies’, JIBLR – Journal of International Banking and Regulation, London, 2013, Volume 28, Issue 1. 9. CONSOB Resolutions 21326 and 21327 of 2020, pursuant to Law Decree No. 23 of 8 April 2020, provide that the 3% and 5% thresholds for holding stock of a listed issuer, respectively not qualifying or qualifying as an SME with a widespread shareholder base (i.e. not controlled as a matter of law – meaning a shareholder holding more that 50% of the stock), have been temporarily reduced to 1% and 3% until 11 July 2020, save for such rule being revoked earlier. Equally, the 10% threshold reached by an investor that would trigger an obligation to provide by a stakeholder a declaration of intentions to CONSOB on the investment objectives for a six month period with respect to such stakeholding (under Article 120, para 4 of the TUF) has been temporarily lowered to 5%.

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Marco Lantelme Tel: +39 02 783 811 / +39 335 136 3330 / Email: [email protected] Marco Lantelme is an Italian avvocato admitted to the Corte di Cassazione and an English solicitor, with a focus on banking & finance, capital markets, corporate, M&A, corporate governance, financial regulation, restructuring and litigation. Based in Milan and a partner at BSVA Studio Legale Associato, he has assisted primary international and core Italian banking, financial, insurance and industrial groups on transactions of over €75bn, often by drafting most of the documents, as well as on issues involving regulatory authorities such as CONSOB, the Italian Stock Exchange and other stock exchanges in countries including Luxembourg, London and Dublin. Partner of a law firm since 2004, he has spent almost 16 years in three of the top five by size UK international law firms, in Milan and in the City of London. He has been a board member for almost seven years of an Italian insurer of a leading international NYSE listed group, he has chaired AmCham insurance task force, and has been a JIBLR country correspondent for Italy.

BSVA Studio Legale Associato Via Borgonuovo, 9, 20121, Milan, Italy Tel: +39 02 783 811 / URL: www.bsva.it

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Toshimitsu Nemoto, Suguru Miyata, Kengo Ozaki & Tetsuya Tamura Mori Hamada & Matsumoto

Introduction Brief history of IPOs in our jurisdiction The Tokyo Stock Exchange, Inc (“TSE”) is the largest and most popular stock exchange in Japan. The TSE has five market divisions; namely, the First Section, the Second Section, Mothers, JASDAQ (consisting of “Standard Market” and “Growth Market”), and TOKYO PRO Market. The listing criteria of the TSE are allegedly broader than those of other international markets. A restructuring of the TSE market structure is under discussion. For the details of the restructuring of the TSE market structure, please see the section titled “Recent, impending or proposed changes to the regulatory architecture in our jurisdiction and our perception of the impact of such changes”. As of 29 February 2020, 3,699 companies, with an aggregate market capitalisation of approximately JPY 672,505 billion, were listed on the TSE. The First and Second Sections are the main boards of the TSE where leading large and medium domestic and international companies are listed. The First Section is specially regarded as one of the top tier markets in the world in terms of size and liquidity. Mothers is a market for growing companies with the aim of shifting to the First Section in the foreseeable future. While loss-making companies can be listed on Mothers, the TSE requires applicants to have high growth potential. As such, companies that have been listed on Mothers for 10 years must choose to either continue listing on Mothers or change their listing market to the Second Section. In addition, if they choose to continue listing on Mothers, they will have to make a market selection again every five years. JASDAQ is a market with the three concepts of reliability, innovation, and regional and international reach. JASDAQ is divided into “Standard Market” for growing companies with a certain size and track record, and “Growth Market” for companies with distinctive technologies and business models that have great growth potential. The TOKYO PRO Market was established based on the “professional-oriented market system”, which was introduced under an amendment of the Financial Instruments and Exchange Act of Japan (Act No 25 of 1948, as amended; “FIEA”) in 2008. In this market, only so-called “professional investors” and non-residents may make investments directly. For reference, the table overleaf shows the listing criteria for the First Section and Mothers.

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Quantitative criteria

First Section Mothers Number of shareholders at 2,200 or more 200 or more the time of listing • 2,000 units or more; • 20,000 units or more; Number and market • JPY 0.5 billion or more of • JPY 1 billion or more of market capitalisation of tradable market capitalisation of capitalisation of tradable shares; shares, and ratio of tradable shares; and and tradable shares to listed • the proportion of tradable • the proportion of tradable shares to shares, at the time of shares to the total number of the total number of issued shares listing issued shares being 25% or being 35% or more more Expected market capitalisation of listed JPY 25 billion or more JPY 1 billion or more shares at the time of listing History of business Three years or more One year or more operation Expected amount of shareholders’ equity at the JPY 1 billion or more – time of listing • Total amount of ordinary profits for both FYLA-1* and FYLA-2 being JPY 0.5 billion or more; or Amount of profits or expected market • expected market capitalisation at – capitalisation the time of listing being JPY 50 billion or more, with the amount of sales for FYLA-1 being JPY 10 billion or more *FYLA: The fiscal year during which the company applies for listing. FYLA-1: The fiscal year immediately preceding the FYLA. FYLA-2: The fiscal year immediately preceding the FYLA-1. Qualitative criteria

First Section Mothers Corporate continuity and profitability Reasonableness of the business plan Soundness of corporate management Effectiveness of corporate governance and Effectiveness of corporate governance and internal internal management system in accordance management system with the size and maturity of the company Appropriateness of disclosure of corporate Appropriateness of disclosure of corporate information information, including risk information Other matters deemed necessary from the viewpoint of the public interest or the protection of investors

Why are companies, domestic and foreign, choosing to go public in our jurisdiction? In general, companies decide to go public to (i) provide shareholders with opportunities to exit, (ii) facilitate and diversify fundraising, and (iii) improve corporate name recognition. Shareholders, including venture capitalists, have more options to exit the company given the opportunity to sell their shares in the IPO or on the market after the IPO. Listed companies have more direct financing options, thereby increasing their fundraising capacity. It is worth noting, however, that listed companies, especially companies listed

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Mori Hamada & Matsumoto Japan on the markets other than the First or Second Sections, often choose fundraising methods other than public offerings, such as MS Warrants, after going public because generally it is difficult in Japan for companies with small market capitalisation to implement follow-on public offerings as securities firms would not underwrite their shares. In addition, becoming a listed company increases publicity through, for example, increased media coverage, which makes it easier to secure good human resources. Listing also increases the motivation of executives and employees which, as shown in research conducted by the TSE, is a strong motivation for companies to go public. Are the current regulatory scheme and market practices conducive to going public in our jurisdiction? Why or why not? As already explained, the TSE has multiple market divisions, each with its own listing criteria. After listing on a market, it is possible to shift to another market with more stringent criteria. Companies listed on Mothers tend to shift to the First or Second Market in a relatively short period of time after their IPOs. Thus, companies seeking to go public can choose the appropriate market, giving a wide range of companies the option and opportunity of going public. Are companies that go public in our jurisdiction more frequently of a particular type or from a particular industry? If so, why? Among the companies listed in recent years, many have been listed on Mothers (64 out of 86 companies in 2019), which indicates that many growing companies have recently been actively seeking listing. Moreover, the number of listed Software as a Service (“SaaS”) companies in recent years has been rising, and there have even been a few unicorn companies listed in the last few years. Why is the number of IPOs currently trending upwards or downwards in our jurisdiction, to the extent a trend is discernible? In 2019, 86 companies went public. The number of IPOs has remained at a high level since 2014. Trends in recent years include a decline in the number of global IPOs and in the amount of offerings per issue. In 2019 in particular, there was only one global IPO for the first time since 2012, and all IPOs were offered at less than JPY 50 billion for the first time since 2009. The total amount raised through IPOs in 2019 was only JPY 324.8 billion, a small amount compared to JPY 578.3 billion in 2017 and JPY 3,129 billion in 2018. Any other noteworthy trends in our jurisdiction? In Japan, most IPOs are conducted through domestic offerings only. This may be due mainly to the heavy burden of preparing English prospectuses and audited financial statements. On the other hand, large-scale IPOs are generally conducted through an international tranche in addition to the domestic tranche, thereby selling to foreign institutional investors as well. In such cases, U.S. institutional investors are generally targeted in reliance on Rule 144A of the U.S. Securities Act. While global offerings in Japan have been declining, the use of the offering structure where an issuer sells a portion of the domestic tranche to institutional investors in Europe and Asia, in addition to domestic investors in Japan, while not setting an international tranche, has been increasing in recent years. One advantage of that offering structure is that, in addition to a stable demand from domestic investors, support from foreign investors in valuation of shares can be expected without having to prepare English financial statements and prospectuses. However, we emphasise that eligible foreign investors exclude U.S. investors and are limited

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Mori Hamada & Matsumoto Japan to investors who can make investment decisions by information disclosed only in Japanese. In addition, as it is necessary to conduct the offering in reliance on Regulation S of the U.S. Securities Act, the involvement of both foreign and Japanese legal counsel who are familiar with capital markets practices, including international offerings, is required. Further, an increasing number of persons with market experience, such as those who have worked in securities firms, are being appointed as CFO or other officers of companies which are preparing for IPOs, making these companies’ risk judgment and risk sensitivity more sound. Description of IPO activity in our jurisdiction year to date in 2019 Please see the sections titled “Are companies that go public in our jurisdiction more frequently of a particular type or from a particular industry? If so, why?” and “Why is the number of IPOs currently trending upwards or downwards in our jurisdiction, to the extent a trend is discernible?”.

The IPO process: Steps, timing and parties and market practice Organising the IPO project team – before the beginning of FYLA-3 Under the listing criteria in Japan, an audit by an auditing firm in accordance with the FIEA is required for two fiscal years, including the fiscal year immediately preceding the fiscal year in which the company is applying for listing. Therefore, in general, preparations start two or three fiscal years before the company applies for listing. The first steps usually involve forming a team within the company, selecting external professionals (such as lead managers, auditing firms and law firms), preparing a schedule for listing, and identifying issues and considering solutions. In addition, it is necessary to establish an internal system appropriate as a listed company, and develop a track record in operating the system by the time of the listing application. At around the time immediately before the application for listing is filed, the lead managers would inspect the company to make recommendations to the TSE, and the inspection generally takes around six months. Before the company formally applies with the TSE for listing, a preliminary listing application is required, and the TSE generally examines drafts of the materials required for formal listing application during this phase. It generally takes from two-and-a-half to four months from the filing of a formal application for listing to the approval of listing, although it depends on the market segment. In Japan, a company submits a securities registration statement in accordance with the FIEA on the date of approval for listing, and launches the IPO. In practice, the listing date is the day immediately after the payment date. Accordingly, it generally takes about one to one- and-a-half months from the launch to the completion of an IPO. Selection of lead manager – as soon as possible after organising the IPO project team Securities firms: For a company to be listed on the TSE, one or more securities firms acting as managers must submit a listing recommendation letter to the securities exchange. Accordingly, securities firms not only examine the company for the purpose of underwriting, but also, as “recommending securities firms”, advise the company on the development of internal systems, such as its capital policy and corporate governance at the preparatory stage, which we believe is unique to Japan. Among managers, the securities firm that supports the listing, taking a leading role, is called a lead manager. Audit firms: Under the FIEA, to be listed, a company must disclose audited financial statements for two fiscal years immediately preceding the fiscal year in which it applies for

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Mori Hamada & Matsumoto Japan listing. Accordingly, an audit firm is necessary. In addition, as the FIEA also requires a listed company to have an internal control system and submit a post-listing internal control report (i.e., the Japanese version of the Sarbanes-Oxley Act), an audit firm is engaged at the listing preparatory stage to advise on the development of in-house systems (including internal control systems), an accounting system, and a capital policy. Law firms: Law firms are retained mainly in the case of global offerings. They typically (i) review documents such as the offering circular and purchase agreements, (ii) issue legal opinions and disclosure letters, and (iii) conduct legal due diligence to support their opinions and disclosure letters. Like their counterparts in the U.S., in the case of U.S. offerings, Japanese law firms are deeply involved, for example, by participating in business due diligence and drafting sessions. On the other hand, in the case of offerings conducted with only a domestic tranche, in the past, they were mostly implemented without the involvement of lawyers, even though the same legal risks arise from gun-jumping and false statements in disclosure documents. In recent years, however, there has been an increase in the number of listings in which a part of the domestic tranche is sold to certain foreign investors and in management’s awareness of due process, and, because of that, the number of listings in which lawyers are retained has been rising even when the offering is conducted only through a domestic tranche. This development is expected to change the practice in Japan. Shareholder services agent: This agent is entrusted with the preparation of shareholder registries and handles shareholder rights such as voting rights. This agent must be selected from the agents designated by the TSE.

Regulatory architecture: Overview of the regulators and key regulations The governmental bodies, self-regulatory organisations and public stock exchanges responsible for regulating IPOs in our jurisdiction, including the scope of their authority and how their responsibilities relate to one another The main regulators involved in IPO processes are the governmental bodies, stock exchanges and self-regulatory organisations. (1) Governmental bodies The authority to supervise and regulate the securities markets, including IPOs, rests primarily with the commissioner of the Financial Services Agency (“FSA”). The commissioner of the FSA further delegates his authority (i) to the Securities and Exchange Surveillance Commission (“SESC”), a commission within the FSA, to ensure fairness in transactions and to investigate in relation to financial administration, and (ii) to the directors ofthe local finance bureaus (“DLFB”) regarding corporate disclosures, including pre-consultation regarding the securities registration statement to be submitted on the launch date (which is the same date of the listing approval). (2) Stock exchanges The TSE consists of two separate entities: a self-regulatory organisation (i.e., the Japan Exchange Regulation (“JPX-R”)); and a corporation under the Company Act of Japan (i.e., the TSE), both of which perform several functions in order to maintain a certain level of independence from each other. The department of supervision of listed companies of the JPX-R conducts the listing examinations for IPOs, and the department of listing companies of the TSE approves the listing. Moreover, the department of the listing companies of the TSE imposes rules on listed companies, including timely disclosure rules and reporting requirements (which only take

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Mori Hamada & Matsumoto Japan effect from the listing date, although, in practice, even before the listing date, IPO-related press releases already comply with those rules and requirements) and delisting criteria; and the department of supervision of listed companies of the JPX-R inspects compliance with those rules and requirements. In most IPOs in Japan, estimates of earnings for the current fiscal year (i.e., FYLA) are published in the form of a press release on the launch date which, as mentioned above, is the same date of the listing approval, around a month before the listing date. The estimates usually include sales, operating income, ordinary income, net income, net income per share and dividend per share. Although disclosure of the estimates is not required by the rules or regulations, publication is a matter of practice that is generally accepted in the Japanese IPO market. In recent cases, however, some emerging companies significantly lowered their earnings estimates just after listing (in one case, three months after listing), which resulted not only in a strong criticism of said companies’ management, lead managers and audit corporations, but also in a loss of investor confidence in the emerging market. Thus, motivated by the request made by the TSE to the Japan Securities Dealers Association (“JSDA”) and the Japanese Institute of Certified Public Accountants, the practice was changed to include a detailed explanation of the assumptions made in earnings estimates stated in press releases. (3) Self-regulatory organisations Among the various self-regulatory organisations in the Japanese markets, the JSDA, which is an association of registered financial instruments business operators including securities firms, is the main regulator of the IPO process. The JSDA imposes rules and regulations, including those on due diligence procedures, allocation of shares to investors, and procedures for book building and over-allotment, which its member firms must comply with. The key rules and regulations applicable to the IPO process in our jurisdiction The key rules and regulations applicable to the IPO process in Japan are: (i) the FIEA, specifically (a) the prohibition on pre-solicitation, and (b) sanctions for false statements in securities registration statements and prospectuses (including roadshow materials, mid- term plans, and earnings estimates); (ii) the listing criteria of the stock exchanges; and (iii) the JSDA rules regarding dealing with material non-public information and other matters. The key legal documents applicable to the IPO process in our jurisdiction and underwriting and syndicate matters Key legal documents produced for an IPO: • Securities registration statement, which must be filed with the DLFB for public inspection through an electronic disclosure system operated by the FSA on the launch date. Pursuant to the FIEA, no public offering of securities can commence without the filing of a securities registration statement, and no sale of securities can be executed before the securities registration statement becomes effective. • Prospectus, which, pursuant to the FIEA, must be delivered to investors on or before the sale of the shares to be listed and the contents of which are almost identical to those of the securities registration statement. • Press releases, the publication of which on the launch date is not required by the listing rules but is generally done as a matter of practice in the Japanese IPO market. • Agreements, including an underwriting agreement between the issuer or the selling shareholders (or both), and the underwriters. • Listing application documents, to be submitted to the stock exchange pursuant to its listing rules.

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The securities registration statement, prospectus, press releases and listing application documents must be prepared in Japanese. Although a foreign company may prepare its securities registration statement and prospectus in English, accompanied by a few supplementary documents in Japanese, it is not practical for a company listed in Japan to adopt an English-language disclosure given the preference of Japanese shareholders to receive the necessary documents in Japanese. IPOs in Japan are typically fully underwritten, with the underwriters contracting with the company or the selling shareholders, or both, to purchase all of the shares to be offered, even if not all of the shares can be sold to investors. The underwriters must be registered as financial instruments business operators under the FIEA. The terms of underwriting are set out in an underwriting agreement and often include an over-allotment option for underwriters. The number of shares subject to an over-allotment option is limited by the JSDA rules to no more than 15% of the total number of shares planned to be offered in the offering. For purposes of the over-allotment, share lending agreements are executed, based on which underwriters borrow shares from either or both the company and the selling shareholders. To return the borrowed shares, underwriters either exercise a call option (i.e., a greenshoe option) or buy shares in the market (i.e., syndicate cover trading). Matters related to underwriting, including the names and addresses of the underwriters and the over- allotment option, must be described in the securities registration statement and prospectus. The type and extent of disclosure that must be presented to prospective investors in connection with an IPO Pursuant to the FIEA, information that must be stated in the securities registration statement and prospectus and presented to prospective investors in connection with an IPO includes information on the securities (e.g., number of shares offered, offer price, and purchase price), information on the company and its corporate group (e.g., risk factors, MD&A, and corporate governance), and audited consolidated and non-consolidated financial statements. In addition, depending on the nature of the company, EBITDA and other key financial figures are often disclosed in the securities registration statement and prospectus, although they are unaudited and not required by the rules or regulations. Until recent years, while financial information is considered important, non-financial information has not been disclosed adequately. In 2019, however, the amendments to the Cabinet Office Ordinance on the Disclosure of Corporate Affairs, etc. took effect and principles on the disclosure of descriptive information was announced by the FSA, both of which emphasised the importance of disclosing non-financial information. The basic concept is to provide to investors with (i) information to understand the company from a management perspective, (ii) context to analyse the overall financial information, and (iii) material information to determine the certainty of future performance through characteristics of the revenue and cash flow, and information on the sources of that revenue and cash flow. This series of amendments encourages companies to enhance the disclosure of (i) descriptive information (e.g., MD&A and risk factors), (ii) audit-related information (e.g., activities of the board of auditors and continuing audit period), and (iii) governance-related information (e.g., executive compensation and cross-shareholding policy). Application of the rules and regulations of IPOs in our jurisdiction Although listing standards vary depending on the market segment, the rules and regulations basically apply uniformly to all IPOs in Japan. In the case of foreign companies, however, the disclosure of financial statements prepared in accordance with generally accepted accounting principles in other jurisdictions may be permitted with the prior approval of the commissioner of the FSA.

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Restrictions on communications or publicity that are applicable to the IPO process in our jurisdiction, including any exemptions therefrom, as well as consequences for violations of these rules Solicitation directed at potential investors prior to the filing of a securities registration statement is prohibited under the FIEA (see “Key legal documents produced for an IPO” above) unless the solicitation meets certain exemptions stipulated in the FIEA. The term “solicitation” is not expressly defined under the FIEA, but generally includes any communication to arouse an investor’s appetite for investment. Although the permitted scope of communications between the company and potential investors is not clear, the relevant guidelines under the FIEA illustrate certain circumstances where a company may engage in limited, necessary communications with investors prior to filing a securities registration statement. In particular, those circumstances include: a) communication or publication of information concerning the company, which does not contain any reference to the planned offering, made on or before one month before the launch date; b) disclosure of information concerning the company required by laws and ordinances, rules of stock exchanges, and other regulations; c) regular communication or publication of information concerning the company, made in the ordinary course of business; d) disclosure of information concerning new products or services, made in the ordinary course of business; and e) communication or publication of information concerning its products, services, business or financials, made in response to a spontaneous inquiry. In accordance with the guidelines, any pre-deal research reports in respect of the company must be distributed to potential institutional investors in Japan at least one month prior to the launch date. If there is any violation of the prohibition on solicitation: • the issuers are subject to civil liability to investors who incur damages owing to the solicitation under the FIEA, which is strict liability; • the issuers are also subject to an administrative monetary penalty under the FIEA, which is equal to 4.5% of the total amount of the company’s offering price for the IPO; and • the issuers and the directors are subject to criminal liability under the FIEA, the maximum criminal liability of which is a JPY 500 million fine for the issuers and five- year imprisonment and/or a JPY 5 million fine for the directors. Recent, impending or proposed changes to the regulatory architecture in our jurisdiction and our perception of the impact of such changes In February 2020, the TSE released an overview of new market segments, which explained the outline of the new market segments, the process of transition to the new market segments, and the schedule of future actions. The current market categories will be reorganised into three market categories (i.e., Prime Market, Standard Market, and Growth Market), and, depending on the concepts of each market category, quantitative and qualitative standards including those for gross value (liquidity) and corporate governance will be established. In addition, new listing standards and listing maintenance standards for each market segment will be unified, and listed companies will be required to maintain new listing standards in each market segment on an ongoing basis even after listing. Furthermore, there will be no relaxed standards for the “transition of market categories” as is currently carried out, and the transition between market categories will require an examination of the same ongoing

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Mori Hamada & Matsumoto Japan criteria as new listing criteria. The new market segments will be introduced in July 2020, and following the market selection procedure to be undertaken by the listed companies from September 2021 to December 2021, the simultaneous transition to the new market categories is scheduled to occur on 1 April 2022. The TSE recently announced the following principles that will be applied in its due diligence process for IPOs with respect to the COVID-19 pandemic: • Reviewing whether any influence of COVID-19 is properly reflected in the business plan (considering temporary decline in earnings). • Reviewing whether any influence of COVID-19 is properly disclosed, specifically in risk factors and earnings estimates, among others. • Allowing an auditor’s qualified opinion on the financial statements regarding the preceding fiscal year of the listing application in the event that a certain part of the auditing procedure is prevented. • Exemption from the re-examination fee if the IPO procedure is cancelled due to COVID-19. Trading units, which were previously 100 shares and 1,000 shares, were unified into 100 shares as of October 2018.

Public company responsibilities Periodic reporting and disclosure obligations Statutory disclosure obligation Companies listed in Japanese stock exchanges are, in principle, required to file annual securities reports with the FSA within three months (for domestic companies) and six months (for foreign listed companies) after the end of their fiscal year. The annual securities report must contain, among others, a description of its business, its group companies, MD&A, risk factors and status of corporate governance. It must also include audited financial statements and audited consolidated financial statements. Listed companies, whether domestic or foreign, are also required to file quarterly reports with the FSA within 45 days after the end of each quarter. The mandatory content of quarterly reports is simpler than that in annual securities reports. Financial statements and consolidated financial statements with review reports from a certified public accountant or an audit firm are also required. Listed companies are required to file an extraordinary report with the FSA if certain material decisions or events stipulated under the FIEA are made or occur. In addition, listed companies are required to file an evaluation report of their internal controls over financial reporting (an internal control report) with the FSA at the same time as the filing of an annual securities report. This obligation requires listed companies to evaluate the effectiveness of their internal controls over financial reporting and obtain an audit certification from a certified public accountant or an audit firm. However, newly listed companies are exempted from the obligation to obtain an audit certification for three years after the listing. Timely disclosure rules Listed companies must comply with timely disclosure rules of Japanese stock exchanges. Corporate information required under these rules includes information on material decisions by a listed company or its subsidiaries, occurrence of events which may have a significant impact on the company or its subsidiaries, and changes in the company’s financial forecasts. Listed companies are also required to disclose earnings reports annually and quarterly.

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Corporate governance standards for listed companies Corporate Governance Code The TSE established Japan’s Corporate Governance Code (the “Code”), which incorporates fundamental principles for corporate governance. The Code became effective in June 2015 and was revised in June 2018. Although it is not compulsory for listed companies to comply with the Code, they are required to explain their decision not to comply. An example of the Code’s principles is the recommendation for boards of directors to engage in oversight activities to ensure timely and accurate information disclosure and to establish appropriate internal control and risk management systems (Code, principle 4.3), among its other supplementary principles. The Code is regarded as a standard for corporate governance for listed companies, and listed companies are required to disclose corporate governance reports considering the principles of the Code. Statement on status of corporate governance in the annual securities report In general, the FIEA requires listed companies to file securities reports with the FSA. A securities report must contain, among others, statements on the status of corporate governance, which must include (i) explanations of the compensation of directors and officers, and (ii) the status of the ownership of shares including the policy on ownership of shares held for non- investment purposes and measures to examine the rationality of the ownership. This disclosure requirement under the FIEA does not require listed companies to set out an adequate corporate governance system, but to accurately and adequately disclose an overview of the system that is in place. The disclosure requirement is aimed at enhancing the adequateness of the corporate governance system of listed companies. Therefore, this disclosure requirement is also regarded as a standard for listed companies to establish an adequate internal control system. If there are false statements or omissions of a material fact in the description of the status of corporate governance in the securities report, the listed company is subject to civil, administrative, and criminal liability under the FIEA. Recently, the FSA, at the recommendation of the SESC, imposed an administrative monetary penalty on a listed company owing to a false statement on the status of its corporate governance in its securities report. The listed company stated that they appointed a director in charge of compliance and formed an audit office. However, the SESC and the FSA found that they had never appointed this director and that the audit office did not exist in substance.

Potential risks, liabilities and pitfalls Potential risks that should be addressed during the due diligence process In the IPO process, underwriters screen for underwriting, and the JPX-R conducts the listing examination. During these procedures, the underwriters and the JPX-R closely examine the effectiveness of a listing applicant’s internal control for financial reporting as it is essential to ensure that the financial statements of applicants are reliable. Recently, as the importance of compliance has become significant, compliance with regulations is under strict scrutiny by underwriters and the JPX-R. For instance, web marketing companies are examined closely on whether they comply with regulations on advertisement and customer protection. Companies providing a web marketplace must adequately monitor illegal trading in terms of the soundness of the markets and the companies’ business continuity.

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Potential legal liabilities and penalties associated with going public During the IPO process An issuer is required to file a securities registration statement and prepare a prospectus in accordance with the FIEA in IPOs. If there are false statements, omissions or misleading statements of a material fact in the securities registration statement or prospectus, the issuers, directors, selling shareholders, auditors, underwriters and persons who provide the prospectus to investors are subject to civil liability to investors who incur damages owing to these statements under the FIEA. This is strict liability for issuers while directors, selling shareholders, auditors, underwriters and providers of the prospectus may have some defences under the FIEA. If there are false statements or omissions of a material fact in the securities registration statement, the issuers are also subject to an administrative monetary penalty under the FIEA. This is strict liability. However, directors are subject to this penalty only if they know of the false statements or omissions of a material fact in the securities registration statement and sell their shares in the IPO. This administrative monetary penalty is equal to 4.5% of the total amount of the respective offering price for the IPO. If there are false statements of a material fact in the securities registration statement or prospectus, the directors who, with knowledge of the false statements, filed that securities registration statement are subject to criminal liability under the FIEA, and if found guilty, then the issuer also becomes guilty. The maximum criminal liability is 10 years’ imprisonment and/or a JPY 10 million fine for those directors, and a JPY 700 million fine for the issuer. After a company becomes a public company Under the FIEA, a listed company must file annual securities reports, quarterly reports, internal control reports, and extraordinary reports. If there are false statements, omissions or misleading statements of a material fact in the annual securities reports, quarterly reports, internal control reports, or extraordinary reports, the listed company and its directors are subject to civil liability to investors who incur damages owing to these statements. This is liability for negligence of the listed company and directors. The burden of proof is on the listed company. If there are false statements or omissions of a material fact in the annual securities reports, quarterly reports, or extraordinary reports, the listed company is also subject to an administrative monetary penalty under the FIEA. The administrative monetary penalty is, in principle, equal to 0.006% of the market cap of the listed company for annual securities reports, and 0.003% for the other reports. This is strict liability for the listed company. If there are false statements of a material fact in the annual securities reports, quarterly reports, internal control reports, or extraordinary reports, the directors who, with knowledge of the false statements, filed these reports are subject to criminal liability under the FIEA, and if found guilty, then the listed company also becomes guilty. The maximum criminal liability is 10 years’ imprisonment and/or a JPY 10 million fine for the directors, and a JPY 700 million fine for the listed company in the case of annual securities reports; or five years’ imprisonment and/or a JPY 5 million fine for those directors, and a JPY 500 million fine for the listed company in the case of the other reports. A false statement in the securities report is also a violation of listing rules. Thus, if the JPX-R finds it necessary for a listed company to improve its internal control system, then it will designate the company as securities on alert. As securities on alert, the listed company will be delisted unless it rebuilds its internal control system within a year-and-a-half.

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Common missteps and pitfalls During the IPO process For listing, a company discloses its forecast of financial results for the current fiscal year. It is common practice for a listing company to be motivated to make its performance look more profitable than it is. In fact, some listed companies which disclosed a better financial forecast at the time of listing lowered the forecast soon after the listing, resulting in a significant decline in their stock prices. Consequently, these days, stock exchanges now take a closer look at the probability of inflated forecasts during the IPO process. After listing In general, listed companies are required to disclose their financial forecasts and dividend forecasts periodically. Companies which have not achieved their forecasts are valued negatively by the market, which could be an incentive for listed companies to commit accounting fraud.

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Toshimitsu Nemoto Tel: +81 3 6266 8529 / Email: [email protected] Toshimitsu Nemoto is a Capital Markets partner at Mori Hamada & Matsumoto. Toshimitsu has been engaged in a wide range of financings, such as global IPOs, global offerings, CB/SB, J-REIT, rights offerings and TSE listing by foreign corporations. Toshimitsu has external experience at Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (2013–2014), and at Ashurst, Sydney and Tokyo (2012–2013). Toshimitsu has been recognised as a Global Leader (Debt and Equity) in Who’s Who Legal: Capital Markets 2019, “Up and Coming” in Chambers Global 2020 and Chambers Asia Pacific 2020, a Notable Practitioner Lawyer in IFLR1000 Financial and Corporate 2020, a Notable Practitioner (Capital Markets) in AsiaLaw Leading Lawyers 2020 and Best Lawyer (Capital Markets Law) in the 11th Edition of the Best Lawyers in Japan.

Suguru Miyata Tel: +81 3 6266 8732 / Email: [email protected] Suguru Miyata is a partner at Mori Hamada & Matsumoto. He has broad experience in equity deals such as initial public offerings, issuances of zero coupon convertible bonds in Euro markets, private placements of stocks, preferred stocks and warrants. He has external experience at Ashurst, London. What makes Suguru unique in this area is his experience in the Securities Exchange and Surveillance Commission of Japan (seconded in 2017–2018) and in enforcement actions and litigations there under the securities law. He has been recognised as a Best Lawyer (Capital Markets Law) in the 11th Edition of the Best Lawyers in Japan.

Kengo Ozaki Tel: +81 3 6266 8929 / Email: [email protected] Kengo Ozaki is an associate at Mori Hamada & Matsumoto. He has broad experience and expertise in capital markets deals such as initial public offerings, private placements of securities, and issuances of equity securities and bonds. He was seconded to the Investment Banking Division of Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. in 2019 and 2020.

Tetsuya Tamura Tel: +81 3 6213 8114 / Email: [email protected] Tetsuya Tamura is an associate at Mori Hamada & Matsumoto. He has broad experience in global capital markets transactions such as global IPOs, global follow-on offerings of J-REITs, issuances of zero coupon convertible bonds in Euro markets, private placements of stocks, preferred stocks and warrants. What makes him unique in this area is his experience in initial proposal to final execution of both equity and debt finance transactions at Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (seconded in 2018–2019).

Mori Hamada & Matsumoto 16th Floor, Marunouchi Park Building, 2-6-1 Marunouchi, Chiyoda-ku, Tokyo 100-8222, Japan Tel: +81 3 6266 8529 / URL: www.mhmjapan.com

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Joo Hyoung Jang, Jisoo Yoo & Ji Hyun Youn Barun Law LLC

Introduction Initial public offering (“IPO”) refers to the registration and sale of stocks of a private firm or company to the investing public in accordance with the regulations and the listing standards. An IPO grants companies access to capital and, at the same time, increases awareness of the companies among financial institutions and retail investors through issuance of articles in various news outlets. As companies may enhance corporate expertise and management transparency in the process of fulfilling public offering requirements and listing criteria, many qualified Korean companies choose to go public. The Korea Exchange (the “KRX”) was created in 2005 through the integration of the Korea Stock Exchange, the Korea Securities Dealers Automated Quotations Market (the “KOSDAQ”), and the Korea Future Exchange. There are three markets in the KRX: (i) the Main Board (known as the “KOSPI Market”); (ii) the KOSDAQ Market; and (iii) the Korea New Exchange (the “KONEX”). The KOSPI Market is the KRX’s main board listing medium to large capital blue chip stocks, and many well-known giants such as Samsung Electronics, LG Electronics, Hyundai Motor, POSCO and KIA Motors have their shares listed on the KOSPI Market. As a regulatory body, the KRX exercises the regulatory supervision on the overall IPO process including the listing application process. The KOSDAQ Market was established in 1996 to raise capital for IT companies, entertainment businesses, high value-added businesses and venture companies. Small and medium-sized venture companies are listed on the KOSDAQ Market and the listing requirements are less rigorous than those of the KOSPI Market. Any business, public offering or listing requirement in connection with the KOSDAQ Market is governed by the rules and regulations of the KOSDAQ Market. Meanwhile, the KONEX Market is a specialised market established in 2013 to support the venture companies or the small and medium-sized enterprises including the start-ups that are unable to satisfy the requirements of the KOSDAQ Market to raise capital. The KONEX Market also has its own rules and regulations. Since 2007, the KRX has been actively promoting the foreign companies’ inbound IPOs to grow as an international stock exchange, and in order to further enhance its credibility and trustworthiness on the international platform, the KRX has signed the Memorandum of Understanding with other global stock exchanges for international cooperation. Moreover, companies incorporated overseas, including those already listed on a foreign market, are eligible to be listed on the Korean stock market. A public listing in Korea will allow foreign companies to form partnerships with Korean multinationals, while Korea’s strategic location will provide them with easy access to Chinese and Japanese markets. In 2019, a total of 73 companies went public in Korea. While the total number of IPOs decreased year-on-year in Korea, the volume of IPOs in 2019 increased from KRW 2.6 trillion

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Barun Law LLC Korea to KRW 3.6 trillion. Thirty-one IPOs in 2019 were from the field of manufacturing (such as electronics and machinery), followed by 17 from pharmaceuticals and biotechnology and 11 from software development and supply. Major trends of the IPOs in 2019 include: (i) a continuous increase in listing through the special listing systems; (ii) a rise in average participation and/or competition in book building; and (iii) an underperformance in year-end share price of companies listed on the KOSDAQ Market. As the number of listings on the KOSDAQ Market by venture companies using the special listing systems for technology companies and for companies with potential growth (to be described hereinafter) has continued to increase (23 companies were listed using the special listing system in 2019, which accounts for 31.5% of total IPOs), investors may be required to monitor the potential impact such systems and related amendments may have on the Korean stock market.

The IPO process: Steps, timing and parties and market practice Steps and timing of IPOs in Korea In order to be listed on the KRX, a listing applicant is required to pass multiple qualification procedures. Key listing procedures and a general timeframe for each step of the IPO processes are outlined as follows:

Steps Period Procedures • Convene a board meeting or shareholders’ meeting for a resolution to list the company stock on the KRX. One to two Pre-IPO • Organise a task force to conduct work for listing (auditor, years underwriter, legal counsel). • Prepare the timetable for the IPO. • Appoint lead underwriter for the IPO. • Execute the underwriting agreement two months prior to the preliminary listing eligibility review. • Prepare the Articles of Incorporation and internal control system through the lead underwriter. • Execute the transfer agent agreement. • Audit and review the legal documents. Offering Six months to • Complete due diligence prior to the preliminary review on listing process one year eligibility (e.g., amendment to the Articles of Incorporation, restructuring of the internal control system, checking the corporate governance, etc.). • Conduct prior consultation with the KRX (foreign applicant should submit the Articles of Incorporation, legal opinion of a legal counsel, auditor’s report, draft application for the preliminary listing eligibility review, comprehensive opinion of the lead underwriter, and due diligence checklist, etc.). • File the application for the preliminary listing eligibility review to the Preliminary Within 45 KRX. listing business eligibility • The KRX Listing Committee will review and notify the result of days review the preliminary listing eligibility review within 45 business days (typically 65 days for a foreign applicant). • Prepare and file the securities registration statement. Filing of • Securities registration statement will be reviewed and become securities Two to three effective within 15 days after filing. registration months statement • Foreign companies should submit the external auditor’s comfort letter with the securities registration statement.

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Steps Period Procedures • Conduct book building. Public • Finalise the prospectus. offering • Conduct investor relations activities for institutional investors. • Determine the final public offering price. Subscription and • Subscribe and allot shares; make payment for shares. allotment of • Report on results of issuing securities. shares Within five • File the application for initial listing to the KRX. Listing business • The KRX will approve the listing. days • Commence trading on the KRX. Parties involved in the IPO process in Korea The key parties that are commonly involved in the IPO process in Korea are as follows: Listing applicant: Listing applicant refers to a company that has applied for listing. The application for preliminary review on listing eligibility, the securities registration statement and the application for initial listing should be filed under the name of a listing applicant. KRX: The KRX is responsible for (i) reviewing the application for the preliminary review on listing eligibility in accordance with the listing requirements, and (ii) checking fulfilment of the share distribution requirements, execution of the transfer agency agreement and payment for the shares. Financial Service Commission (“FSC”): FSC is a regulatory body that evaluates and accepts the securities registration statement. Lead underwriter: A listing applicant should appoint a lead underwriter in accordance with #1 of the aforementioned procedure. Unlike the cases in foreign countries (e.g., United States) where lead underwriters are allowed to host IPOs with firm commitments, IPOs in Korea generally do not require firm commitments by the lead underwriters. The key roles of a lead underwriter are summarised as follows: • Review documents and data on the applicant’s business performance, operation and financial soundness. • Consult and check the applicant’s financials, accounting, and tax requirements. • Check and verify the accuracy of the descriptions in the securities registration statement. • Regularly check the process of listing work and prepare listing documents. • Conduct the applicant’s stock analysis and book building; negotiate the issue price of a new share. • Manage the public offering process and subscription activities. Other advisers: Foreign companies should appoint a domestic or foreign auditing firm satisfying certain criteria and should submit an attorney’s opinion letter when filing the application for listing eligibility review and securities registration statement. The applicant is required to appoint a listing agent based in Korea to take care of tasks such as the issuing of securities, listing of securities, and corporate disclosure requirements. The listing agent manages the relationship between the applicant and the KRX and attends to all matters required by the KRX. Unique feature of IPOs in Korea In Korea, venture companies and small and medium-sized enterprises with innovative business ideas and technologies can apply for the special listing system (e.g., so-called “fast track listing requirements for companies with technological growth” and “fast track listing requirements

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Barun Law LLC Korea for companies with promising business model”) of the KOSDAQ Market. Such fast track listing systems are granted depending on the company’s possession of special technology or potential of business scalability instead of near-term profitability. If a company is listed through the special listing system, such company may be exempted from the requirements of which a listed company would normally be required to comply with in order to stay listed.

Regulatory architecture: Overview of the regulators and key regulations The governmental bodies and organisations responsible for regulating IPOs in Korea The KRX and the FSC of the Republic of Korea are the major regulatory bodies involved in the listing application process. The KRX is a regulatory body responsible for the review and approval of listing applicants and regulates all matters regarding listing. The FSC is a regulatory body responsible for all matters related to equity markets including public offerings. Key listing rules applicable to the IPO process in Korea A company may select either the KOSPI Market or the KOSDAQ Market to be listed based on its industry group and size. In order to be listed on the KOSPI or the KOSDAQ Market, companies must meet a number of qualitative requirements, including requirements relating to management transparency, growth potential, investor protection and stability, etc. Companies must also satisfy quantitative requirements including, but not limited to, requirements relating to operating history, capital size, share distribution, business performance, financial affairs, audit opinion and corporate governance, etc. Key criteria for qualitative review for both the KOSPI and KOSDAQ Markets Company’s continuity • Stability: Operational stability, financial stability, operating history, and level of customer satisfaction. • Growth potential: Periodic cycle of industry growth, diversification of sale items and customers, sustainability of research and development activities, and new product development. • Legal dispute: Impact of lawsuits on business. Management transparency • Corporate governance structure: Major shareholder, management, non-executive board members, statutory auditors, and audit committee. • Internal control system: Internal control system including internal accounting management system, and transaction between the related parties. • Accounting transparency: Establishment of accounting system, accounting standard and audit opinion of external auditor. Investor protection • Transparency in disclosure: Availability of separate disclosure team. • Protection of minority shareholders: Enforceability of the rights of minority shareholders, issue of convertible debt, execution of safeguard deposit. • Liquidity and soundness of stock market: Diversification of shares, protection of liquidity, settlement of dispute regarding duplicate listing. • Qualification of lead underwriter: Professional execution of IPO, calculation of public offering price. Key criteria for quantitative review for the KOSPI Market The KOSPI Market’s listing requirements are the most stringent amongst KOSPI, KOSDAQ and KONEX, and the details are as set forth in the table overleaf.

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Criteria Requirements At least three years. (For applicants with less than three years of operating history Operating due to a merger and divesture, the actual business term of the merged or divested history portion may be considered.) • Equity capital (or market capitalisation): KRW 30 billion or more. Capital size • Number of shares to be listed: 1 million shares or more. • Number of general shareholders: At least 700 general shareholders. • There is no restriction placed on transfer of shares. Condition 1: At least 25% of shares or 5 million shares held by general shareholders. Condition 2: At least 25% of shares or 5 million shares to be publicly offered. Share Condition 3: While at least 10% of shares should be offered publicly, shares should distribution be issued on the basis of equity capital or market capitalisation as set forth below: requirement Aggregate standard (satisfy Equity capital Number of shares any of the market price following KRW 50–100 billion KRW 100–200 billion 1 million conditions) KRW 100–250 billion KRW 200–500 billion 2 million KRW 250 billion KRW 500 billion 5 million Condition 4: In case of a simultaneous public offering in Korea and abroad, at least 10% of shares and 1 million shares should be offered publicly. Condition 1: The applicant must satisfy all of the following “Sales and Profit” requirements: i. Revenue: Sales of KRW 100 billion for the latest fiscal year and average sales of KRW 70 billion for the last three years. ii. Profit: Applicants must have a positive operating income (a profit before income tax from continuing operations and a current net income). iii. Return on equity (“ROE”) and profit (satisfy any one of the following conditions): a. ROE: 5% for the latest year and 10% in total for the last three years. b. Amount of profit: KRW 3 billion for the latest year and KRW 6 billion in total for the last three years. Financial c. Any company with equity capital of KRW 100 billion or more: requirements • 3% ROE or KRW 5 billion or more in profit. (satisfy • Positive operating cash flow. any of the Condition 2: The applicant must satisfy the following “Sales and Market Capitalisation” following requirements: conditions) i. Sales: Higher than KRW 100 billion of the latest fiscal year. ii. Market capitalisation: Higher than KRW 200 billion. Condition 3: The applicant must satisfy the following “Net Income and Market Capitalisation” requirements: i. Net income: Higher than KRW 5 billion of the latest fiscal year. ii. Market capitalisation: Higher than KRW 200 billion. Condition 4: The applicant must satisfy the following “Equity Capital and Market Capitalisation” requirements: i. Equity capital: Higher than KRW 200 billion. ii. Market capitalisation: Higher than KRW 600 billion. Unqualified opinion for the latest fiscal year and unqualified or qualified opinion Audit opinion (excluding the qualified opinion due to the limitation placed on audit scope) for the two years preceding the latest fiscal year. • The number of outside directors: At least ¼ of the total number of directors. (Where a company has assets of KRW 2 trillion or more, the company is required to have an audit committee and at least three outside directors, which should constitute half Corporate of the total number of directors.) governance • Companies with total assets of KRW 2 trillion or more are required to establish an audit committee and at least ⅔ of the committee members must be outside directors. • Companies with assets of KRW 100 billion or more must have a full-time internal auditor.

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Key criteria for quantitative review for the KOSDAQ Market The KOSDAQ Market’s listing requirements are less stringent compared to the KOSPI Markets and the details are as set forth below:

Criteria Requirements Operating No requirements. history Capital size No requirements. Condition 1: If minority shareholders (the number of minority shareholders should be at least 500) hold 25% or more of shares after the submission of application for preliminary listing eligibility review, at least 5% of shares shall be publicly offered. If minority shareholders hold less than 25% of shares, at least 10% of shares shall be publicly offered. Condition 2: If the number of minority shareholders is at least 500 and at least 10% Share of shares are offered publicly after the submission of application for preliminary listing distribution eligibility review, shares should be issued on the basis of equity capital or market requirement capitalisation as set forth below: (satisfy Aggregate standard any of the Equity capital Number of shares following market price conditions) KRW 50–100 billion KRW 100–200 billion 1 million KRW 100–250 billion KRW 200–500 billion 2 million KRW 250 billion KRW 500 billion 5 million Condition 3: Number of minority shareholders is at least 500 and at least 25% of shares are offered publicly. Company with technological General company (Venture company) growth Condition 1: Sales and profit (satisfy any one Condition 1: Equity capital of KRW 1 of the following conditions): billion. 1. i) Income from continuing operations Condition 2: Market capitalisation of before tax: KRW 2 billion (venture company: KRW 9 billion. KRW 1 billion), and ii) market capitalisation: The KRX may request i) an expert’s KRW 9 billion. recommendation and assessment 2. i) Income from continuing operations report of technological capability, or before tax: KRW 2 billion (venture company: ii) listing sponsor’s recommendations Financial KRW 1 billion), and ii) equity capital: KRW and appraisal. performance 3 billion (venture company: KRW 1.5 billion). requirements 3. i) Positive income from continuing (satisfy operations before tax, ii) market capitalisation: either “Sales KRW 20 billion (venture company: KRW and profit” 3 billion), and iii) sales of KRW 10 billion condition or (venture company: KRW 5 billion). “Potential 4. Income from continuing operations before growth” tax: KRW 5 billion. condition) Condition 2: Potential growth (satisfy any one of the following conditions): 1. i) Market capitalisation: KRW 50 billion, ii) sales revenue: KRW 3 billion, and iii) average growth rate: 20% in the last two years. 2. i) Market capitalisation: KRW 30 billion, and ii) sales revenue: KRW 10 billion (venture company: KRW 5 billion). 3. i) Market capitalisation: KRW 50 billion, and ii) PBR of 200% after offering. 4. Market capitalisation: KRW 100 billion. 5. Equity capital: KRW 25 billion.

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Criteria Requirements Unqualified opinion for the latest fiscal year. (In practice, it is advised to have an Audit opinion unqualified opinion of the last two years for a successful listing.) • The number of outside directors: At least ¼ of the total number of directors. (Where a company has assets of KRW 2 trillion or more, the company is required to have an audit committee and at least three outside directors, which should constitute half Corporate of the total number of directors.) governance • Companies with total assets of KRW 2 trillion or more are required to establish an audit committee and at least ⅔ of the committee members must be outside directors. • Companies with assets of KRW 100 billion or more must have a full-time internal auditor. Key criteria for quantitative review for the KONEX Market The KONEX Market’s listing requirements are the most flexible amongst KOSPI, KOSDAQ and KONEX, and the details are as set forth below:

Criteria Requirements Small and medium- A listing applicant should be a small or medium-sized enterprise pursuant sized enterprises to the Framework Act of Korea on Small and Medium Enterprises. Public interest and A listing should be recognised as not having been involved in any matters investor protection deemed inappropriate for public interest or investor protection. Restriction on transfer No restriction placed on transfer of shares. of shares Key listing rules applicable to foreign applicants Companies incorporated overseas, including those already listed on an overseas market, are eligible to be listed on the Korean stock market. The typical timeframe for gaining admission for a company which is already listed elsewhere is normally about two months. A foreign applicant is required to name a custodian institution and a bank for dividend payment prior to the application date for the preliminary listing eligibility review. A foreign applicant intending to list Korea Depository Receipts (“KDRs”) is required to enter into the stock depository agreement with the Korea Securities Depositary (the “KSD”). Further, a foreign applicant for listing is required to submit a securities issuance schedule to the Ministry of Strategy and Finance prior to listing. When a foreign company submits an application for preliminary listing eligibility review on the KOSPI Market, a certificate of listing on an overseas exchange and a record of stock transactions on the overseas exchange for the most recent year must be submitted in addition to the documents required to be submitted by domestic companies. For the KOSDAQ Market, (i) a document certifying the company’s listing on a foreign stock exchange, (ii) a record of securities transactions on the overseas exchange for the most recent year, and (iii) a depository agreement including listing depository receipts for foreign stocks should be submitted in addition to the documents required to be submitted by domestic companies. Type and extent of disclosure that must be presented to prospective investors In order for a company to offer new stocks for public subscription in the IPO process, the company must disclose the securities registration statement and the prospectus. The securities registration statement includes matters concerning the IPO price, sales method, details of rights, risk factors and book building, etc., and the prospectus should state the matters concerning (i) the public offering or sale of securities (including IPO outline, basis for calculating IPO price, etc.), and (ii) information regarding the issuer (a description of business, details of financial matters, an auditor’s opinion, information on affiliated

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Barun Law LLC Korea companies, shareholder information, details of officers and employees, details of any transactions with stakeholders and matters necessary for investor protection). Moreover, it is important to note that if an applicant for listing has violated disclosure requirements in the past (e.g., failure to submit the securities registration statement), such action could negatively impact the applicant throughout the listing process. In particular, in order to ensure proper disclosure during the process of listing and subsequent processes thereafter, the KRX recommends that the public disclosure system be overhauled by the applicants at the preparation stage of listing. The disclosure regulations of the KOSPI and the KOSDAQ stipulate that listed companies should designate one public disclosure director and two or more persons in charge of public disclosure to be registered in the KRX, and such persons are required to complete public disclosure-related training by the end of the half-year following the half-year containing the date of the new listing. Rules and regulations that are not applied uniformly KOSDAQ: In the KOSDAQ Market, there is a special listing system that allows certain companies to be subject to different listing requirements compared to those applicable to general companies. There are cases listed through a special listing system for venture companies or companies with technological growth. Companies eligible for such special listing are subject to preliminary screening requirements that are different from general companies, wherein the difference includes the exemption of requirements concerning operating history, sales, and equity capital. In addition, with the introduction of Tesla listing conditions, less stringent financial requirements are applied to specific companies located in countries such as the United States, Japan, and the United Kingdom, pursuant to the listing regulations; thereby, loss-making blue-chip companies are granted access to public listing. KONEX: For venture companies, listing requirements on sales, equity capital and net profit are all loosened. KOSPI: There are no rules on special listing in the KOSPI Market. However, there has been recent press coverage mentioning that the KRX has been contemplating an introduction of special listing requirements/review standards for the next generation companies and industries with high growth potential to list on the KOSPI Market; however, such revision of the listing regulations has yet to be made. Noteworthy trends in Korean jurisdiction The recent trend of IPO processes in Korea can be characterised by the KRX’s attempts to relax the listing requirements for companies with high growth potential in both the KOSPI and KOSDAQ Markets. For example, the KOSDAQ Market has introduced a special listing system called Tesla listing requirements, granting loss-making companies access to the exchange provided they have sufficient growth potential with innovative business ideas and technologies. Furthermore, the KRX has recently announced that it will consider phasing in multiple measures to reform listing requirements of the KOSPI Market (e.g., special listing system) to allow companies with high growth potential in a specific industry, such as renewable energy, to be listed on the KOSPI Market. Impending or proposed changes to the regulatory architecture The aforementioned relaxation of requirements for listing on KOSDAQ gives rise to the need to reinforce regulation against companies with potential issues; therefore, measures such as expansion of screening requirements for KOSDAQ listing eligibility are being taken. Accordingly, screening targets for early removal of companies engaged

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Barun Law LLC Korea in malfeasance have expanded and precautionary measures, such as stock lock-up, have been strengthened. If KOSPI listing requirements are further eased as discussed by the KRX, the screening system for delisting insolvent companies and/or malfeasant companies may also be expanded. In addition, the KRX emphasises the internal control issues of individual companies during the listing eligibility review process (transparency of major shareholders or management, corporate governance, accounting systems, transactions with subsidiaries and affiliates, etc.); thus, there was a case where a listing applicant withdrew the listing eligibility review process because there was an inappropriate (i) transaction of goods between the company and its subsidiaries, or (ii) monetary transaction between the company and the largest shareholders or other executives.

Public company responsibilities Public companies shall comply with the rules and regulations of the Financial Investment Services and Capital Markets Act of Korea (the “Capital Markets Act”) and the corporate disclosure requirements of the KOSPI, KOSDAQ and KONEX Markets. Under such rules and regulations, public companies are required to make timely and accurate disclosure of material corporate information that may have an effect on the stock price or trading volume in order to protect the investors. Types of disclosure are periodic disclosure, timely disclosure, inquired disclosure, fair disclosure, special disclosure and voluntary disclosure. All public companies listed on the KRX, foreign and domestic, should satisfy the following disclosure requirements:

Types Disclosure Public companies must release their annual business report within 120 days following the closing date (90 days for domestic companies) and semi-annual/ quarterly reports within 60 days (45 days for domestic companies) following Periodic the closing date. (In case of a foreign company primarily listed on an overseas disclosure exchange, such company should publish the annual business report and semi-annual/quarterly reports within 10 days from the date of reporting to the overseas exchange.) Public companies must disclose the material events relating to their financial status, change of management, operational and production activities, Timely disclosure receivables and liabilities, investment activities, profit and loss analysis, financial settlements and legal actions, and further disclose material events of their holding and subsidiary companies. Public companies must answer to the relevant disclosure inquiries from the KRX Inquired when there are rumours or media coverage on their material corporate matters disclosure or sudden or abnormal changes in their stock price and/or trading volumes. Public companies must disclose their future business/management plans and Fair disclosure profit forecast before providing such information to other institutional investors. Public companies must disclose the information regarding material corporate Special disclosure events including a merger, stock exchange, business or major assets transfer, and repurchase and disposal of treasury stock, etc. Voluntary Public companies may disclose at their discretion the information or future plans disclosure that might have an impact on their business or the investors’ investment decision. Potential risks, liabilities and pitfalls Due diligence process and procedures An IPO shall be preceded by extensive commercial, financial and legal due diligence processes to prepare necessary arrangements for a successful listing, analyse risk factors

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Barun Law LLC Korea for investor protection, and detect any potential legal issues. Legal due diligence shall cover investigation into the record of previous violation of laws in various areas, including assets, contracts, license, insurance, labour, and disputes. Such process shall prioritise protection of investors on a continuous basis by analysing whether there have been any illegal transactions with affiliated persons and whether there are any risks of contingent liabilities arising from large-scale lawsuits, among other potential legal issues. While multiple authorities in Korea have published official guidelines for due diligence in IPOs, such as ‘Due Diligence Code of Practice’ (Financial Supervisory Service, December 2011) and ‘Standard of Best Practice for Lead Underwriters’ (Financial Investment Association, 2017), such publications are only referred to as recommended guidelines without any legal enforceability; hence, there does not exist any legally binding regulation on due diligence for the IPO process. Countries with active IPO activities, such as the United States and Hong Kong, often mandatorily require compliance with the official due diligence code; however, such code or standards in Korea are referred to as guidelines without legal enforceability and therefore, conducting due diligence in Korea has fewer requirements to comply with. Potential legal liabilities and penalties The Capital Markets Act stipulates that, in case an investor suffers damages due to any false statements or omission of material information in the securities registration statement or prospectus during the stage of reviewing the preliminary listing eligibility and filing the securities registration statement, the listing applicant, the directors of the applicant, or the lead underwriter shall compensate the investors for such damages. Moreover, an accountant or a lawyer involved in such cases may be subject to (i) civil liability if he/she has consented to or signed for any materially false information, and/or (ii) criminal liability if any materially false information has been wilfully made. It should be noted that if a listed foreign company is found to have provided false or fabricated financial data, such company may be delisted and the fine will be imposed to the lead underwriter as well. For example, a Chinese textile company listed on the KOSPI Market in 2011 was delisted in 2013 as it was found to have fabricated disclosures and committed accounting fraud. The underwriter appointed by the Chinese textile company was fined KRW 2 billion for their failure to carry out proper due diligence on the company.

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Joo Hyoung Jang Tel: +82 2 3479 7519 / Email: [email protected] Mr. Jang is a Partner Attorney at Barun Law LLC. Since joining the firm in 2005, his practice has focused on cross-border transactions, M&As and general corporate matters and he has accumulated a broad range of experience and expertise in these fields. He has served as a Member of the Digital Media City of Seoul since 2003, and Vice-Commissioner of the International Committee of the Korean Bar Association and Member of the In-House Lawyers’ Special Committee of the Korean Bar Association since 2011. Mr. Jang received his B.A. in law from Seoul National University and his LL.M. from Columbia Law School. He is a member of the Bar of the Republic of Korea.

Jisoo Yoo Tel: +82 10 3740 8974 / Email: [email protected] Mr. Yoo is a Korean Attorney at Barun Law LLC. As a junior member of the Corporate Advisory Group, he assists Korean and international clients on a broad range of corporate and financial issues. Mr. Yoo received his B.A. from Seoul National University majoring in Geography and Economics and received his J.D. from Seoul National University Law School.

Ji Hyun Youn Tel: +82 2 3479 2667 / Email: [email protected] Ms. Youn is a Foreign Attorney at Barun Law LLC. As a junior member of the Corporate Advisory Group, she assists Korean and international clients on a broad range of corporate issues. She is also involved in the international arbitration practice at the firm. Ms. Youn received her B.A. from Johns Hopkins University and received her J.D. from the Chinese University of Hong Kong and LL.M. from Northwestern Pritzker School of Law.

Barun Law LLC Barun Law Building, 92 gil 7, Teheran-ro, Gangnam-gu, Seoul 06181, Korea Tel: +82 2 3476 5599 / URL: www.barunlaw.com

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Kamal Habachi & Salima Bakouchi Bakouchi & Habachi – HB Law Firm LLP

Overview The Casablanca Stock Exchange was established as long ago as 1929. At that time, it was known as the Office de Compensation des Valeurs Mobilières (Office for Clearing of Transferable Securities). The growth of the securities market and the introduction of foreign exchange controls prompted the authorities at that time to improve and regulate the Stock Exchange’s organisation and operations. However, the market’s organisational shortcomings hindered its attractiveness at a time when domestic investors showed a growing interest in stock market investment. To overcome such shortcomings, reforms were undertaken in 1967, providing Morocco’s financial markets with a well-organised legal and technical framework. Following these reforms, in 1986, Morocco embarked on a Structural Adjustment Programme funded by the IMF which was completed 10 years later. This Programme enabled Morocco to consolidate its fundamentals and successfully bring under control its high level of debt and inflation. Seven years later, in 1993, another major set of market reforms was undertaken to complement and enhance previous measures with the enactment of three fundamental laws: • the Dahir (Royal decree) providing Law No. 1-93-211 relating to the Stock Exchange; • the Dahir providing Law No. 1-93-212 relating to the Conseil Déontologique des Valeurs Mobilières (“CDVM”, financial markets authority) and information required of corporate entities making a public share offering that has become Autorité Marocaine des Marchés de Capitaux (the Moroccan Capital Market Authority, “AMMC”), established by the Dahir establishing Law No. 1-13-21 bearing Law No.43-12; and • the Dahir establishing Law No. 1-93-213 relating to Undertakings for Collective Investments in Transferable Securities (“UCITS”). The aim of such reforms was to substantially modernise the market by: • creating the CDVM to ensure investor protection; • giving accreditation to brokerage firms, specialist intermediaries, who are the only entities empowered to execute transactions in transferable securities; • creating UCITS, financial intermediaries whose sole responsibility is to manage investment portfolios according to the risk diversification principle; and • creating the Société de Bourse des Valeurs de Casablanca (“SBVC”), a private company responsible for managing the Casablanca Stock Exchange and whose share capital is jointly owned by authorised brokerage firms. In order to increase market transparency, the obligation to publish accounting and financial statements for listed companies came into force in 1993. The refusal of 10 companies to comply with these new measures resulted in their delisting.

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In January 1997, further improvements were made to stock market organisation by the enactment of Law No. 34-96, revising and complementing the Dahir establishing Law No. 1-93-211 relating to the Casablanca Stock Exchange. Maroclear, the central securities depositary, was established in October 1998, by the enactment of Law No. 35-96. Since then, the Casablanca Stock Exchange has been rejuvenated. In 2000, the SBVC has changed its name to become the Casablanca Stock Exchange, a joint stock company (société anonyme) with a board of directors and a supervisory board. In January 2007, the Casablanca Stock Exchange redesigned its visual identity with a wish to support its change in size. In terms of market organisation, several new measures have been adopted, including: • the launch of a new electronic-based trading system in March 1997; • the Official Market and Direct Transfers Market were replaced by the Central Market and Block-trade Market in November 1998; • electronic-based trading was relocated to the premises of the brokerage firms’ trading rooms in January 2001; • the trade settlement period was shortened from T+5 to T+3 in May 2001; • the new Masi and Madex indexes, sector indexes, total return indexes and currency indexes were launched in January 2002 and the float-weighted capitalisation method for calculating indices was adopted in December 2004; • adoption of a clearing system and abolition of the market of listed gold coins in March 2002; • adoption of Law No. 52-01 revising Dahir No. 1-93-211 of 21 September 1993 relating to the Stock Exchange, simplifying listing requirements and establishing five different types of quotation markets, including three Equity Markets, the Bond Market and the Funds Market in April 2004; • application of new listing requirements in January 2005; • in May 2007, the enactment of the new laws relating to the Dahir providing Law No. 1-93-211 relating to the Stock Market, Law No. 1-93-212 relating to the CDVM and to information required from the legal entities offering their securities to the public, and Law 26-03 relating to the public offerings, namely: • Law 45-06 relating to the registration of capital securities of a legal entity listed on the Moroccan market and outside Morocco; • Law 44-06 relating to the development of the consolidated accounts for the legal entities offering their securities to the public by issuance of bonds or other debt securities; • Law 46-06 relating to the obligation of filing a public offering of withdrawal in the event of delisting; • the enactment of the ordinance of the Economy and Finance Minister No. 1137-07 having modified Article 3.7.8 of the General Rules of the Stock Market in June 2007; and • publication of the ordinance of the Economy and Finance Minister No. 1268-08 having adopted the General Rules of the Stock Market in August 2008; • the establishment of version 900 of the new quotation system in March 2008; • in December 2008, the creation of a Casablanca Stock Exchange follow-up committee created by the board of directors for the revamping of the statutes of the company and the shift from a model of dual governorship with board directors and a supervisory board to a model with a board of directors and general management; • in April 2009, the Casablanca Stock Exchange officially adopted corporate governance with a board of directors and general management; and

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• the circular of the Moroccan Capital Market Authority No. 03-2019 of February 2019 relating to financial transactions and information (“the Circular”) provides new concepts and redesigns the financial reporting obligations of companies whose debt or equity securities are listed on the Casablanca Stock Exchange. The Circular is divided into the following two parts: • financial information communicated to the AMMC concerning the visa for financial operations; and • improved public information with strengthening information obligations of companies and of the Environmental, Social and Governance (“ESG”) aspects and a framework for relations with the auditors. Formerly reserved for large companies, today the initial public offering (“IPO”) is a strategic opportunity for small and medium-sized companies (“SMEs”) as well. An IPO is a process that should only be initiated after verifying that listing is the appropriate response to the company’s motivations. Listing a company meets several objectives, including: • raising funds by diversifying the company’s sources of financing; • financing a strong growth of the activity which cannot be financed by the traditional sources of financing; • facilitating external growth through a merger or acquisition; • facilitating the transfer of the company, in particular because of difficulties related to succession; • attracting the partners of the company in the benefits of its growth (customers, suppliers, employees, etc.); • offering liquidity to shareholders; and • increasing the reputation of the company and its visibility on the market. The Casablanca Stock Exchange maintained a strong presence on international trading screens in 2017, with the dissemination of its data and information to 400 financial institutions located in 30 countries around the world. The average number of users of real- time Moroccan stock market data increased by 19% in 2016. In Africa, the Casablanca Stock Exchange ranks third in terms of capitalisation behind the Nigerian and Egyptian Stock Exchanges and third in terms of trading volumes. The new Casablanca Stock Exchange General Regulations (9 December 2019) In the framework of the adoption of Law No. 19-14 relating to the Stock Exchange, brokerage firms and financial investment advisers promulgated bythe Dahir No. 1-16- 151 (25 August 2016), and in collaboration with the Direction du Trésor et des Finances Extérieurs and AMMC, the new “General Regulations” of the Casablanca Stock Exchange have been adopted to respond to market developments. The new General Regulations of the Casablanca Stock Exchange are a major advance in the modernisation of the Moroccan stock market. Indeed, the new measures taken give the Casablanca Stock Exchange more flexibility in implementing the necessary tools for market development. This flexibility will make it easier to adapt to the expectations of issuers and national and international investors. The main objectives of the General Regulations, as defined by the Casablanca Stock Exchange, are as follows: • to modernise the legislative framework governing the stock market; • to better organise the markets and compartments; • to provide a market dedicated to SMEs; • to better manage the listing of foreign companies on the stock market; and • to supervise the activity of financial investment advisers.

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The main changes are as follows: 1. Financial instruments Within the framework of the General Regulations, the new regulatory system refers to “financial instruments” instead of “securities”. These financial instruments include equity securities, debt securities and securities of Collective Investment Schemes. 2. The definition of Markets (Main and Alternative) Each market includes several compartments, dedicated to some kind of instrument or investors according to the size. The “Main A” and “Main B” compartments are dedicated to equity securities, which are distributed according to the size of their market capitalisation. 3. The rules to be observed during the IPO On the main market, companies must communicate to the public: • a minimum of securities, corresponding to a percentage of the capital according to their market capitalisation; and • a minimum amount depending on their market capitalisation. On the alternative market, reserved for SMEs, at least one of the following criteria must be met: • have an average number of employees of less than 300 during the last six months; • have a total balance sheet for the last financial year not exceeding MAD 200 million; • have a turnover of the last financial year not exceeding MAD 500 million; and • SMEs wishing to self-finance on the alternative market must issue a minimum of MAD 5 million in equity securities or MAD 20 million in debt securities. 4. The inclusion of liquidity in the conditions of stay The General Regulations introduce the inclusion of liquidity in the conditions of stay, with the possibility for the Stock Exchange to mark a special mention on illiquid securities. 5. Transfer of financial instruments to another compartment Any issuer may request the transfer of its financial instruments to another compartment, on the main market or the alternative market. In the event of transfer of financial instruments from the main market to the alternative market, the issuer remains subject to the same information obligations to which he was subject to in the main market until the end of the financial year following the financial year during which the transfer was made. 6. Judicial sales Judicial sales have been introduced into the General Regulations. Depending on the quantity of financial instruments being sold, the Casablanca Stock Exchange decides, after receiving advice from the AMMC, on the method of sale. 7. The non-listed instruments The non-listed instruments market must respond to the following main principles: • issuers are not subject to the legal and regulatory obligations applied to securities admitted to the Stock Exchange; • instruments entered in the trading services are not subject to the same trading and settlement rules applied to instruments admitted to the Stock Exchange (variation thresholds, reservations, central market, block market, etc.); and • only financial intermediaries and UCI management companies can be authorised to access the trading system for instruments listed on this market. Please note that companies already listed on the stock market are not affected by these changes.

The IPO process: Steps, timing and parties and market practice Only capital securities issued by public limited companies and limited partnership with shares (Société en commandite par actions) are eligible for listing on the Stock Exchange.

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Prior to making an IPO decision, companies must ensure that the following criteria are met:

First compartment: Second compartment: Third compartment: Criteria Main market Development market Growth market Capital Fully paid-up Fully paid-up Fully paid-up Minimum amount MAD 75 million MAD 25 million MAD 10 million issued Minimum number of 250,000 100,000 30,000 shares issued Minimum amount of MAD 50 million No fixed limit No fixed limit equity capital Turnover (n-1) No fixed limit MAD 50 million No fixed limit Number of certified Three Two One financial periods Companies opting for the First compartment and having subsidiaries must establish and certify their consolidated accounts in accordance with applicable legislation, such as the International Accountanting Standards (“IAS”) or International Financial Reporting Standards (“IFRS”). Companies opting for the Second or Third compartments must conclude a mandate of securities on the stock market with a Stock Exchange company, for one and three years respectively, to ensure the liquidity of their securities. In addition, those opting for the Third compartment must conclude an assistance agreement with a Stock Exchange company for three years, including obligations relating to the preparation of public information materials. Terms and conditions If a company decides to list shares on the stock market, several steps must be completed beforehand. Preparing the offering filing documentation This first stage consists of preparing the filing documentation for the IPO. To do this, you will need to be guided by a specialist financial intermediary: Preliminary requirements Your financial advisor and global coordinator for the offering (investment bank) will assist and advise you during the entire process by: • appraising your firm; • arranging the necessary legal, accounting and tax-related matters; • drawing up a provisional offering schedule; • determining the IPO price; • choosing the date for listing your company’s shares; and • preparing the prospectus. Statutory auditors The statutory auditors are responsible for: • certifying the parent company’s financial statements for the financial years preceding your company’s stock market flotation; and • advising on any restructuring and statutory amendments which may be required prior to the IPO. Validating the offering filing documentation To complete this stage, you must seek the approval of two entities: the AMMC; and the UCITS.

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As a market watchdog, the UCITS is the first entity to receive your company’s IPO application. The latter includes a number of documents including a prospectus. The UCITS is responsible for assessing your application and ensuring that it complies with current rules, and at the end of this stage, the UCITS gives its stamp of approval once the Casablanca Stock Exchange has approved the offering. This stamp of approval does not in any way represent a guarantee by the UCITS that the offering will be a success, nor does it authenticate the information submitted; rather,it confirms the appropriateness and consistency of the information provided by the company making the IPO. The Casablanca Stock Exchange is the stock market’s managing company and, before the UCITS gives its stamp of approval, is initially involved in: • assisting in the choice of IPO procedure; • issuing the offering’s approval notice; and • setting the offering’s definitive schedule. Handling subscriptions After the application has been validated, your financial advisor will appoint the placing syndicate which will be responsible for placing your company’s shares with the public. The placing syndicate is composed of: • a lead manager who will manage the offering; and • brokerage firms and/or banks appointed to collect subscriptions. During the subscription period, members of the placing syndicate collect the subscription forms. The Casablanca Stock Exchange centralises the subscriptions submitted by members of the placing syndicate and prepares the results which are made public. These results give both an overall and detailed overview of the offering, including the number of subscribers per order type, per subscriber category, by nationality and per region. Trading in the shares This stage involves the actual listing of your company’s shares and is also known as the first day of trading. From this moment onwards, your company will be officially listed. It will have its own “ticker”, which is a shortened form of the company’s name and its own securities code.

Regulatory architecture: Overview of the regulators and key regulations Market operators There is no efficient stock market without strict and adopted regulations. The 1993 reform, amended and completed in 1996, established five players on the stock market: asset management companies; brokerage firms; Les organisme de placements collectif en valeurs mobilières (“OPCVMs”); UCITS (the AMMC at present); and l’Association Professionnelle des Sociétés de Bourse (“APSB”). Law No. 35-96 of 9 January 1997 on the dematerialisation of securities established a sixth intervener: the central depositary, Maroclear. OPCVM: Established in 1995, the Moroccan OCPVM has grown significantly and continues to play a significant role in market development. The first OCPVM was launched for an amount of MAD 500 million. A year later, the total assets managed by the 20 marketed OPCVMs totalled MAD 2.7 billion. At the end of the 1990s, the number of OPCVMs rose to 125 and the amount of assets managed had exceeded MAD 50 billion.

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Brokerage firms: Established in 1995 by the Dahir establishing Law No. 1-93-211 of 21 September 1993 and authorised by the Moroccan Ministry of Economy and Finance. They have a monopoly in terms of stock market brokerage. Their business consists of executing transactions in transferable securities, ensuring the custody of securities, discretionary portfolio management and providing liquidity for listed securities. In the case of IPOs, brokerage firms also assist corporate entities in making public share offerings by preparing documentary information for the public as well as collecting subscriptions. SBVC: The capital of the Casablanca Stock Exchange, a management company, is held equally by all of the stockbroking firms. Its main mission is the management and development of the stock market. AMMC: Acting as the Financial Market Authority, the AMMC was established by Dahir establishing Law No. 1-13-21 bearing Law No. 43-12 and its mission is to: • ensure the protection of savings invested in financial instruments; • ensure equal treatment of investors, transparency, and integrity of the capital market and of the investor’s information; • ensure proper functioning of the capital market and ensure the implementation of legislative and regulatory provisions; • ensure control of the activity of different organisations and persons subject to its control; • ensure compliance with laws and regulations related to the fight against money laundering by individuals and institutions subject to its control; • contribute to promoting financial education for savers; and • assist the government in the regulation of the capital market. APSB: The professional association which works together with all brokerage firms active in the Moroccan market. Its mission is to represent its members with other market players and governments. Maroclear: Established in accordance with the provisions of Law No. 35-96 of 9 July 1997 which introduced a system of transferable securities in non-physical form, Maroclear is Morocco’s central securities depositary. Its mission consists of: • acting as securities custodian for its members as well as ensuring the transfer and administration of securities; • centralising custody of securities in current accounts opened exclusively in the name of professional organisations such as banks, brokerage firms, and corporate issuers; • ensuring the system of payment and delivery of securities; and • simplifying the process for exercising rights attached to securities. Procedures for the introduction to the Stock Exchange IPO procedures have two objectives: to disseminate securities to the public; and to ensure their first listing. There are two types of introduction procedure. The first type includes “market” procedures, centralised by the Casablanca Stock Exchange and to enable the two above objectives to be achieved simultaneously. There are three of them: • Fixed price offer (“OPF”) or public offering of sales (“OPV”). • Minimum price offer (“OPM”). • The ordinary listing procedure. A second type of procedure is worth mentioning regarding any procedure centralised by the financial intermediary, leader of the placement syndicate, either associated with an ordinary listing procedure or with a fixed price offer or trading of securities.

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For the first type of procedure, there are two important characteristics: • it includes several categories of orders that depend on the number of securities or the quality of the clients; and • it allows a differentiated treatment of each category of order with preferential service rates for some of them. The second type is a mixed formula in which the placement and the fixed price offer take place simultaneously; the investment price should not be lower than the fixed price offer. It can be seen from this increasing number of procedures that it is essential for the company to choose the procedure best adapted to its activity and to measure the future consequences of such decision. The choice of the procedure depends on the type of investors the company wishes to associate with the introductory operation. The characteristics of the introduction procedures

Ordinary Min. price Fixed price offer Pre-investing listing offer • Price range announced during pre-marketing Fixed and Offer price Minimum Minimum • The final price is fixed either permanent price at the beginning or at the closing of the placement Notice from the Casablanca Stock Exchange describing the terms of the Notice transaction Deadline of the notice 5 10 10 During the pre-marketing (exchange days) Limited course Limited price Orders at price of Orders orders; best- Technique of book building orders only the offer accepted order Casablanca Centralisation Stock – – Stockbroking firm of orders Exchange Identical service rate for all ordering customers Attribution of belonging to the same category, proportional Discretionary service rate securities reduction 5% on all 5% within the Minimum quoted price price range 5% of all orders Not applicable service level* orders served *If this cannot be achieved due to excessive demand, the procedure is postponed to a higher price; a blocking of funds can then be requested. The investment procedure primarily targets institutional investors that the financial intermediary has the opportunity to select. Market procedures allow for a more diversified shareholder base with a significant share of individual shareholders. This choice also depends on the valuation of the company. Thus, the fixed price offer is used as soon as the value of the company introduced is clearly ascertained. On the contrary, the procedures at the minimum price or the technique of book building used in placement procedures leave to the market the option to appreciate the introductory price.

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Public company responsibilities Corporate governance standards The role of governing bodies in the process of preparing an IPO is very important, to the extent that, in addition to making the decision, they must surround themselves with experts to succeed in the operation. Therefore, they must facilitate the missions of the experts by allowing them to implement all the necessary procedures, considering the size and complexity of the operation. The responsibility of governing bodies is to ensure that: • all features of the proposed transaction to the shareholders and to the public whose savings are requested is not such as to favour or prejudice one of the parties; and • the information presented to the public is consistent with reality, does not contain any omission to alter its scope, and represents all the elements necessary for potential investors to base their judgment on the assets, business, financial situation, results and prospects of the company, as well as the rights attached to the securities offered. As a result, governance bodies must: • validate the company’s business plan before handing it over to the financial advisors and be prepared to argue and discuss it with the advisors; • ensure the quality and completeness of the information made available to the advisers of the operation; • review the evaluation report provided by the financial advisor and discuss it with him before determining the price of the share; and • review the diligence reports of all advisers to the transaction. Information note An information memorandum is prepared either by an issuer that makes a public offering or by a management company that markets an OPCVM to the general public. The purpose of the information note is to inform investors so they can make thoughtful decisions. However, there is a distinction between investors who, in view of their level of financial knowledge, choose to invest directly in the market during a public offering transaction, and investors who, taking into account their aversion to risk and their lack of control over investment, decide to invest in securities indirectly through OPCVM. The information note must, under the law, present complete, clear content that is comprehensive of all the important facts with respect to the securities to be issued and the nature of the issuer. It must reveal all material facts likely to affect the value or price of the security in question. It is a rich source of important information for any future investment analysis. The information note is a mandatory document prescribed by the Dahir Law No. 193-212 relating to the AMMC and to the information required of legal persons making a public offering, and by theDahir bearing Law No. 1-93-213 relating to undertakings for collective investment in transferable securities. The UCITS requires the note to ensure that investors have access to complete information about the securities to be issued. The purpose is to standardise the information available to investors and facilitate the analysis and comparison between various investments. This allows investors to take a rigorous and diligent approach before investing in OPCVM security or units. A company that wishes to make a public offering, or an OPCVM that wishes to market securities to the general public, must prepare an information document that must be published in a legal notice newspaper, delivered or addressed to any person whose subscription is

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Bakouchi & Habachi – HB Law Firm LLP Morocco solicited and made available to the public at the issuer’s head office or marketing network. Prior to its publication and distribution, this information document must be covered by the UCITS after it has verified that the information presented is relevant and consistent. The publication takes place at least five working days before the start of the period of subscription or acquisition of the securities subject to the transaction. For UCITS, the publication takes place within 10 calendar days after the visa of the information note.

Potential risks, liabilities and pitfalls Investing in an IPO is frequently seen as an easy way of investing, but it is extremely risky and many investment advisers advise against it unless you are principally experienced and knowledgeable. The potential risks are detailed below: Unpredictable: The unpredictable nature of IPOs is one of the main reasons that investors advise against investing in IPOs. Shares are initially offered at a low price, but they see major changes in their prices during the day. The price may rise considerably one day, but may fall steeply the following day. Potential of stock market: Returns from investing in IPOs are not certain because the stock market is extremely volatile. Stock market fluctuations generally affect not only the individuals and household but the economy as a whole. The instability of the stock market makes it complicated to predict how the shares will perform over a period of time as the profit and risk potential of the IPO depends on the state of the stock market at that exact time. The required transparency: Depending on the chosen market, the company admitted to trading is subject to more or less severe constraints in terms of information and transparency with regard to its shareholders. Loss of control: The executives of a listed company are required to spend a lot of time with the press, the financial community and the shareholders. In addition, they must constantly refocus their policies between the development of a long-term policy and the presentation of good results in the short term so as not to compromise their share price or their ability to raise funds at a later date. Reference shareholders also see their control over the company weakened. In addition to this relative loss of control, there are potential constraints on corporate governance that may also reduce their freedom of action. Some companies, especially SMEs, avoid opening up their capital because their shareholders fear losing control of the company. When the capital contributed by the founders no longer subsists, they turn primarily to the debt solution. It is only in the last resort that they call for financing in other forms and open their capital to the public. The cost of listing: An IPO represents a very significant workload for all those involved in the operation, whether they are the financial intermediaries, auditors, supervisory authorities, communications advisors or lawyers. The company itself must involve its managers, but also some of its employees or shareholders.

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Kamal Habachi Tel: +212 522 47 4193 / Email: [email protected] Dr Kamal Habachi is an Executive Partner of HB Law Firm LLP. He is admitted to the Casablanca Bar Association. He received his Ph.D. in 2004 from a French university. He has significant experience in M&A transactions, bank & financing agreements, and cross-border transactions as well as restructuring. He is specialised in corporate law, finance law, contract law, and securities law. Kamal speaks four languages: Arabic; French; English; and Spanish.

Salima Bakouchi Tel: +212 522 47 4193 / Email: [email protected] Salima Bakouchi is a Partner at HB Law Firm LLP admitted to Casablanca Bar. She has developed significant experience in structured finance, project finance, mergers & acquisitions, and real estate. She has also advised on large financing deals in Morocco over the last 20 years, and regularly advises clients on their acquisitions. She also has solid experience in alternative dispute resolution, as well as in legal proceedings and pleadings before the jurisdictions of the Kingdom and participating in institutional missions reform linked to business law. Her skills are recognised in the business world and she is ranked in The Legal 500 EMEA, IFLR and Décideurs Magazine.

Bakouchi & Habachi – HB Law Firm LLP 6, Rue Farabi, Boulevard Rachidi, Residence Toubkal, 2nd floor, Gauthier, Casablanca, Morocco Tel: +212 522 47 4193 / URL: www.hblaw.ma

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Eduardo Paulino, Margarida Torres Gama & Inês Magalhães Correia Morais Leitão, Galvão Teles, Soares da Silva & Associados

Introduction The evolution of capital markets in Portugal in recent decades has been greatly influenced by the political scene. The revolution of 1974, which reinstated a democratic regime in Portugal after a 48-year-long dictatorship, was a stepping stone in the development of capital markets, with a clear impact on the upsurge of Initial Public Offerings (“IPOs”). In fact, in the first few years after the reopening of the stock market, after a shut-down between 1974 and 1977 following the revolution, capitalisation was very low, as most of the larger companies listed before 1974 had been nationalised. However, the stock market grew strongly in the early and mid-1980s, supported by greater incentives for companies to list. Indeed, there were 88 IPOs in 1986 and 1987 followed by listing, a period of unparalleled issuing activity in Portugal. A significant number of the earlier IPOs in Portugal derive from a privatisation programme started in the late 1980s and early 1990s. There has been great disparity between the IPOs of state-owned and privately owned companies, with offerings in the former cluster averaging a size nearly 10 times greater than a typical privately owned company IPO.1 This is due to the fact that the largest Portuguese companies were nationalised in 1975, including banks and insurance companies as well as companies operating in strategic sectors such as telecommunications, electricity, and oil and gas. These nationalised companies have been progressively privatised since the 1980s, mostly through IPOs. Conversely, the bulk of privately owned companies in Portugal is composed of small and medium-sized enterprises (“SMEs”), resulting from several decades of detachment from international competition, and from being mostly oriented to a small and emerging domestic market. In recent years, the number of IPOs has been decreasing, especially since the financial crisis of 2008. However, despite the decreased volume of IPOs in recent times, a shifting trend can be noticed: as the majority of previously state-owned companies have been already privatised, most of the more recent IPOs have been executed by privately held firms and SMEs, not by state-owned companies. Additionally, private companies seem to be starting to consider alternative listing venues, in particular multi-trading facilities such as Euronext Access and Euronext Growth (both of which are managed by the Euronext group).2

The IPO process: Steps, timing and parties and market practice Under Portuguese law, IPOs may be executed through public distribution offers (“ofertas públicas de distribuição”) of shares, most commonly through an offer for subscription (“oferta pública de subscrição”), where the issuing company offers its shares for subscription

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Morais Leitão, Galvão Teles, Soares da Silva & Associados Portugal to undetermined investors. In association with a distribution offer, the IPO process will often entail the admission of the company’s shares to trading on a regulated market. This analysis puts the focus on the procedure and listing requirements in the regulated market operated by Euronext Lisbon, which is currently the only regulated market for the trading of shares in Portugal. Due diligence Most often, once a company decides to go public, its IPO process will begin with a due diligence procedure with the purpose of analysing several aspects and the status of the company (e.g., financial, commercial, legal, accounting, tax, and others). This due diligence procedure may be conducted by the company seeking to go public with the assistance of legal counsel and financial intermediaries (e.g., investment banks) which may intervene in the IPO process as underwriters or, more generally, in the placement and distribution of the company’s securities in the market. The results of the due diligence exercise will also assist in the structuring and potential strengthening of the company’s corporate governance practices and mechanisms. Preparation of a prospectus The carrying out of any public offer relating to securities should be preceded by the approval and disclosure of a prospectus containing complete, true, updated, clear, objective and lawful information necessary to enable the addressees to make an informed assessment of: (i) the offer, the securities concerned thereby and the rights attached thereto, its specific characteristics and its assets and liabilities; (ii) the economic and financial position of the issuer and the guarantor, if any; and (iii) the prospects for the business and earnings of the issuer and the guarantor, if any. Considering that admission to trading of securities generally requires the publication of a prospectus, the offer prospectus is usually prepared as an offering and listing prospectus. The disclosure of information in the prospectus shall comply with the national legal provisions in the Portuguese Securities Code3 and Regulation (EU) 2017/1129 of the European Parliament, and of the Council of 14 June 20174 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the “Prospectus Regulation”) and its delegated acts.5 Without prejudice to the format adopted, the prospectus is required to include a summary that provides key information to investors, concisely and in non-technical language. Among other aspects, the prospectus will include information on: (i) the persons who, according to the Portuguese Securities Code, are responsible for its contents;6 (ii) the purposes of the offer; (iii) the issuer and its activity; (iv) the main risks to which the issuer, its activities and the investment in the offered securities are subject; (v) the issuer’s corporate governance structure and the identity of the members of corporate bodies of the issuer; and (vi) the financial intermediaries that are members of the placing consortium, where applicable. If the offer is made in Portugal, the prospectus shall be drafted in a language accepted by the Portuguese Securities Market Commission (“Comissão do Mercado de Valores Mobiliários” or “CMVM”), unless the offer is made in Portugal (and other European Member States) and the CMVM is not the competent authority, in which case the prospectus may also be drafted in a language commonly used in international financial markets, at the option of the issuer or the offeror.

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Testing the waters: Bookbuilding A possible step in the IPO process which may occur prior to the announcement of the offer is the collection of investment intentions (“intenções de investimento”) with the public, in order to help determine the price of the offer or assess its potential success. Under Portuguese securities law, companies seeking to complete an offer for subscription of shares may “test the waters” through a bookbuilding procedure. Here, the company should issue a preliminary prospectus (which must be approved by the CMVM), describing the conditions and price of the offer while the bookrunner, acting through managers, evaluates the level of public interest in the company’s shares. At the end of the bookbuilding period, the price is determined in accordance with the level of demand. Although foreseen in Portuguese law, preliminary prospectuses are relatively unusual. Approval and publication of the prospectus In order to obtain approval from the CMVM of the prospectus for the public offer and admission to trading, the issuer shall present an approval request to the CMVM, together with a set of documentation which includes the company’s corporate documentation (for instance, among others, a copy of the relevant resolutions and the necessary management decisions, a copy of the issuer’s by-laws, up-to-date certificate of the issuer’s company registration, financial statements, etc.), as well as other documentation pertaining specifically to the offer (such as copies of contracts entered into with the financial intermediary assisting in the operation, placing contracts, if applicable, and stabilisation contracts, if applicable). The issuer must be notified of the approval of the prospectus within a maximum period of 20 days from the receipt of any complementary information required. The absence of notification from the CMVM within the abovementioned period must be considered as non- approval of the prospectus. Once approved by the CMVM, the prospectus must then be disclosed under the terms and conditions of articles 140 and 236 of the Portuguese Securities Code through one of the following means: (i) publication in one or more newspapers of national diffusion or wide circulation; (ii) in printed form to be available free of charge at the facilities of the regulated market or at the issuer’s registered office and the branches of the financial intermediary in charge of the placing of the securities; (iii) in electronic form on the issuer’s website and, if applicable, on the website of the financial intermediaries in charge of the placing of the securities; (iv) in electronic form on the website of Euronext Lisbon; or (v) in electronic form on the CMVM’s website. Listing application A request for the listing of shares must be submitted to Euronext Lisbon in order for the company’s shares to be admitted to trading on a regulated market in Portugal. With the listing application, a set of documents and information must be provided to Euronext Lisbon pursuant to the Portuguese Securities Code, Euronext’s Harmonised Rules (Rule Book I, Notice n.º 1-01, Notice n.º 1-02), as amended7 and other applicable legislation (such as Euronext Lisbon Rule Book II and applicable Notices). The above includes some of the same documentation required by the CMVM for its approval of the prospectus and also, among others, the documents specified in the Euronext application form including, but not limited to, documentation evidencing that: (a) the legal position and organisation of the issuer are in accordance with applicable laws and regulations; (b) the administration

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Morais Leitão, Galvão Teles, Soares da Silva & Associados Portugal of corporate events and the payment of dividends (if applicable) are ensured; (c) adequate procedures are available for the clearing and settlement of transactions in respect of the relevant securities; (d) the Legal Entity Identifier (“LEI”) code pertaining to the issuer has been provided; (e) all press releases have been published in the context of the admission to trading; (f) a paying agent and a representative for relations with the market have been identified; and (g) a social security certificate and a tax office certificate, indicating if there are any amounts owed respectively to the social security system and to the national treasury. All documentation required for submission must be in English, or in a language accepted by Euronext Lisbon, and translated by a certified translator if necessary. With the submission of the listing application, the applicant and Euronext Lisbon should agree on a schedule for completion of the process of admitting the company’s shares to trading. The issuer shall then appoint a Listing Agent (“Agente de Admissão”) who will assist and guide the issuer during the entire process of admission to listing. Euronext Lisbon will decide on the application for admission to listing within a 30-day period, unless otherwise agreed with the issuer (and in no case later than 90 days after the application). This period only begins when Euronext Lisbon is in possession of all relevant documentation and required information. In case of a favourable decision to list, such decision shall remain valid for a maximum period of 90 days. Simultaneously, the issuer should deal with the proceedings regarding the registration of the shares with the Portuguese Centralised System of Registration of Securities (“Central de Valores Mobiliários”) managed by Interbolsa – Sociedade Gestora de Sistemas de Liquidação de Sistemas Centralizados de Valores Mobiliários, S.A.

Regulatory architecture: Overview of the regulators and key regulations As mentioned above, under Portuguese securities law, the IPO process entails a public offer for distribution of shares (“oferta pública de distribuição”) as well as the admission of the company’s shares to trading on a regulated market. This procedure poses a set of material and procedural requirements. The role of the Portuguese securities regulating authority The process of offering and admission to trading in an IPO is overseen by the CMVM, which supervises the licensing process as well as trading operations and, more generally, the activity of securities markets in Portugal. In the context of IPOs, the CMVM must, within its supervisory role, approve a prospectus for the admission of securities to trading. Under article 145 of the Portuguese Securities Code, the CMVM is the competent authority to approve the prospectus for issuers with a registered office in Portugal, in relation to, among other cases, issues of shares. The CMVM is also competent to approve prospectuses concerning securities issued by non-EU issuers, when exclusively or firstly trading in a regulated market in Portugal. The inclusion of any changes to the information and data disclosed in the prospectus must be subsequently approved by the CMVM, by means of an approved supplement. In addition, as mentioned previously, if a company intends to have its shares listed on a regulated market in Portugal, it must submit a formal request to Euronext Lisbon. In the process of admitting securities to trading, Euronext Lisbon may impose additional listing requirements, when reasonable, and demand any additional documentation from the applicant. Euronext Lisbon may also conduct inquiries and investigations in connection with the listing application.

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Key rules and regulations Offer and listing requirements are set out in three main legislative frameworks: (i) the Portuguese Securities Code; (ii) the regulations and instructions approved by the CMVM; and (iii) the “Euronext Rule Book” and Notices, including Book I (the harmonised market rules, in force for all Euronext entities) and Book II8 (the non-harmonised market rules, specifically applicable to the Securities Markets, the Non-Regulated Markets, and the Derivatives Markets operated by Euronext Lisbon), as well as in EU legislation concerning capital markets, including the legislation mentioned in the previous sections and market abuse regulations.9 In this respect, it should be noted that most of the rules contained in the Portuguese general framework, with regard to securities regulation, result from the implementation of, or are greatly influenced by, EU legislation. As such, the Portuguese legal regime is very similar to other EU Member States. Key listing requirements In order to have its shares admitted to trading on a regulated market, the issuer must meet the following set of general eligibility criteria, as set out in articles 227 and 228 of the Portuguese Securities Code: (i) the issuer must be incorporated in, and act in accordance with, the respective applicable law; (ii) the company must be able to prove that its economic and financial situation is compatible with the nature of the securities as well as with the market requirements on which listing is required; (iii) the company must have carried out its business activity for at least three years; and (iv) the company must have disclosed its annual accounting and financial reports for the three years preceding that of the requested listing (the so-called “track record” requirement). In any case, the latter requirement may be waived by the CMVM when the interests of the issuer and of the investors advise in such a way, and provided that sufficient information is disclosed in order to allow the investors to form an informed judgment on the issuer and the securities. This flexible solution may be particularly relevant in the case of recent or start-up companies. Pursuant to article 227(4) of the Portuguese Securities Code, the application for admission to trading shall outline the means by which the company will disclose information to the public and identify a settlement system, accepted by the managing entity of the regulated market, through which equity payments and payments of other amounts associated with the securities can be assured. Conversely, in order to decide on listing applications filed by issuers seeking to go public, Euronext Lisbon should also verify if the requirements established in the Euronext Rule Book are fulfilled. These requirements are set forth: (i) in section 6.6 of Rule Book I, which establishes general requirements, applicable to all kinds of securities’ listings; and (ii) in section 6702 of Rule Book I, establishing specific requirements regarding share listings only. The general requirements concern mostly corporate matters, for example: whether the issuer has the necessary legal form and structure in accordance with Portuguese law; whether it is in compliance with all requirements imposed by the CMVM; and whether the necessary procedures for clearing and settlement of transactions are in order. Regarding the securities to be issued, it must be verified if the shares of the same class have identical rights and whether such shares are freely transferable and negotiable in accordance with Portuguese law, as well as whether they are compliant with the issuer’s articles of association.

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The specific requirements generally match those on the listing of shares specified in article 229 of the Portuguese Securities Code which include, in particular, requirements on the company’s minimum market capitalisation and public float. According to the Portuguese Securities Code, the market capitalisation of the company’s shares must be at least €1m. In case it is not possible to determine the market capitalisation of the shares, the company’s own funds, including the results of the preceding financial year, must be at least €1m. Euronext Lisbon may set stronger capitalisation requirements in case there are other regulated markets with higher capitalisation thresholds. However, as of today, Euronext Lisbon is the only regulated market for the admission and trading of shares in Portugal and, for that reason, the applicable thresholds for minimum capitalisation are those set in the Portuguese Securities Code as described above. On the other hand, the Portuguese Securities Code requires adequate dispersal of shares to the public. There is a legal presumption that the level of dispersal is adequate if the shares to be admitted to trading are dispersed to the public in a proportion of at least 25% of the share capital of the company represented by that class of shares. However, if the market is expected to trade regularly below that threshold, a lower proportion may be acceptable. There are no additional requirements regarding shareholdings, and the law sets no general restrictions on substantial or qualified shareholdings (except in the case of regulated companies, such as financial institutions). Conversely, there are generally no post-IPO share lock-up obligations established in the law.

Public company responsibilities Under Portuguese law, when a company undergoes an IPO process, it will, as a requirement, be deemed a “publicly held corporation” or “public company” (“Sociedade Aberta”), meaning that its share capital is open to public investment. This status of “Sociedade Aberta” brings an additional legal regime which includes various duties and encumbrances, mostly related to greater transparency, reporting, and corporate governance requirements. These additional obligations are intended to provide the market with greater information and to provide protection to undetermined and dispersed shareholders. Periodic reporting and disclosure requirements With regard to the disclosure of information, listed companies are required to publicly disclose inside information, i.e., any circumstances which exist or may reasonably be expected to come into existence, or any event which has occurred or may reasonably be expected to do so, regardless of its degree of materialisation, which a reasonable investor would be likely to use entirely or partially as a basis for their investment decisions, since it would be likely to have a significant effect on the prices of securities or financial instruments. Issuers which have securities admitted to trading on a regulated market, or which have requested their admission to such a market, must promptly disclose privileged information as established in Regulation (EU) 596/2014, of the European Parliament and the Council, of 16 April 2014, as amended, and respective regulations and delegated acts. However, under these provisions, issuers may delay the public disclosure of this information in certain circumstances. The Portuguese Securities Code further requires companies listed in Portugal to disclose additional information, including, among other items: (i) notices convening general meetings of the holders of listed securities; (ii) the issue of shares, with an indication of

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Morais Leitão, Galvão Teles, Soares da Silva & Associados Portugal beneficial privileges and guarantees, including information on any procedures for their allotment, subscription, cancellation, conversion, exchange or repayment; (iii) amendments to the details that have been required for the admission to trading of securities; and (iv) the acquisition or disposal of own shares when, as a result thereof, the proportion of the same exceeds or falls below the thresholds of 5% and 10%. Regarding own shares, CMVM Regulation no. 5/2008, as amended, including by CMVM Regulation no. 7/2018, further provides that issuers of shares or other securities that confer subscription, acquisition or disposal rights, which are subject to Portuguese law as their personal law and exclusively admitted to trading in a regulated market located or operating in Portugal or exclusively traded in a multilateral trading system or organised trading system, or issuers with head offices located outside the EU who have elected Portugal as the competent EU Member State among those in whose territory they are admitted to trading on a regulated market or operate, should notify the CMVM of any acquisitions and disposals of such securities. Issuers should also disclose the final result of any transactions that reach, exceed or fall below 1% of the share capital or successive multiples as well as all the acquisitions and disposals, regardless of their net balance, carried out in the same session of the regulated market reaching or exceeding 5% of the volume traded in said session. It should also be noted that, according to articles 16 and 17 of the Portuguese Securities Code, public companies should disclose qualified shareholdings, as defined therein, as well as certain cases where a shareholder reaches or exceeds certain thresholds of the voting rights corresponding to the capital, or reduces its holding to an amount lower than any of such thresholds. Additionally, according to CMVM Regulation no. 5/2008, as amended, including by CMVM Regulation no. 7/2018, public companies are further required to disclose the following additional information: (i) the exercise of subscription, incorporation and acquisition rights to securities, namely as a result of mergers or demergers; (ii) the exercise of any existing rights to convert any securities into shares; (iii) any changes in the attribution of voting rights in qualifying holdings; (iv) any filing for insolvency, judgment initiating insolvency proceedings or dismissing the filing for insolvency, and also the approval and official confirmation ofthe insolvency plan; (v) the increase or decrease of share capital; (vi) information regarding applications for admission to regulated markets and respective decisions; and (vii) the convening of a general meeting to determine the loss of public company status and the respective resolution. Furthermore, issuers are required periodically to disclose financial information and reports. Indeed, issuers must disclose the following information within four months from the end of the financial year and make publicly available for a period of 10 years: (i) the management report, the annual accounts, the audit report and other accounting documents required by law or regulation, even if such documents have not yet been submitted for approval of the general meeting of the company; (ii) the auditor’s report; and (iii) statements from each of the responsible persons of the issuer, whose names and functions shall be clearly indicated, stating that, to the best of their knowledge, the financial information was drawn up in accordance with the applicable accounting standards,

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reflecting a true and fair view of the assets and liabilities, financial position and results of the issuer and the companies included in the consolidation as a whole, when applicable, and that the management report faithfully states the trend of the business, the performance and position of the issuer and companies included in the consolidation as a whole, and contains a description of the principal risks and uncertainties faced. Issuers required to draw up consolidated accounts shall disclose individual accounts, drawn up in accordance with national legislation, and consolidated accounts, drawn up in accordance with Regulation (EC) 1606/2002, as amended.10 Conversely, issuers that are not required to draw up consolidated accounts shall disclose the financial information individually, drawn up in accordance with national law. In the event that the annual report does not provide an exact picture of the net assets, financial situation and results of the company, the CMVM may order the publication of supplementary information. The documents that comprise the annual report and accounts shall be submitted to the CMVM as soon as the same are available to the shareholders. Additionally, within three months after the end of the first half of the financial year, issuers shall disclose the following information with regard to the activity for said period, and keep available to the public for 10 years: (i) the condensed set of financial statements; (ii) an interim management report, which shall include, at least, an indication of important events that have occurred during said period, and the impact on the respective financial statements, together with a description of the principal risks and uncertainties for the remaining six months; and (iii) statements by the persons responsible within the issuer, whose names and functions shall be clearly indicated, wherein it is stated that, to the best of their knowledge, the condensed set of financial statements has been prepared in accordance with the accounting standards applicable, gives a true and fair view of the assets and liabilities, financial position and results of the issuer and the companies included in the consolidation as a whole, when applicable, and that the interim management report includes a fair review of the required information. Finally, issuers which are credit institutions or financial companies11 are obliged to publish quarterly financial information, within three months of the end of said period. The remaining issuers who decide nonetheless to disclose quarterly financial information shall comply with the CMVM’s regulations in this respect and maintain such disclosure for at least two years. The CMVM may waive some of the abovementioned disclosure duties whenever such disclosure would be contrary to public interest or seriously detrimental to the issuer, provided that the omission would not be likely to mislead the public with regard to the facts and circumstances essential for assessing the securities. Corporate governance standards Public companies must also comply with additional corporate governance disclosure requirements. Current corporate governance standards derive from different legal sources, including the Portuguese Companies Code,12 the Portuguese Securities Code, CMVM Regulation no. 4/2013 and the recommendations contained in the Corporate Governance Code of the Portuguese Institute of Corporate Governance (Instituto Português de Corporate Governance, “IPCG”).13

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According to article 245-A of the Portuguese Securities Code, issuers of shares admitted to trading on a regulated market, situated or functioning in Portugal shall disclose, in their annual management report, a detailed report on the corporate governance structure and practices of the company. This report shall contain at least the following information: (i) the capital structure, including information on shares which are not admitted to trading, with an indication of the different classes of shares and, for each class of shares, the rights and obligations attached to it and the percentage of share capital it represents; (ii) any restrictions on the transfer of shares, such as clauses on consent for disposal, or restrictions on the ownership of shares; (iii) qualified holdings in the company’s share capital; (iv) identification of any shareholders that hold special rights, and a description of such rights; (v) the system of control of any employee share scheme where the voting rights are not exercised directly by the employees; (vi) any restrictions on voting rights, such as limitations on the voting rights of holders of a given percentage or number of votes, deadlines for exercising voting rights, or systems whereby the financial rights attached to securities are separated from the holding of securities; (vii) shareholders’ agreements which are known to the company and may result in restrictions on the transfer of securities or voting rights; (viii) the rules governing the appointment and replacement of board members and amendment of the articles of association; (ix) the powers of the board, notably in respect of resolutions to increase equity; (x) any significant agreements to which the company is party and which take effect, alter or terminate upon a change of control of the company following a takeover bid, as well as the effects thereof, except where their nature is such that their disclosure would be seriously damaging to the company; this exception shall not apply where the company is specifically obliged to disclose such information on the basis of other legal requirements; (xi) any agreements between the company and members of the management body or employees providing for compensation if they resign or are made redundant without valid reason, or if their employment ceases because of a takeover bid; (xii) core information on the internal control and risk management systems implemented in the company regarding disclosure of financial information; (xiii) compliance with the corporate governance statement to which the issuer is subject by virtue of legal or regulatory provisions. The issuer shall also specify those parts of said code that deviate and the reasons therefor; (xiv) compliance with the corporate governance statement by which the issuer voluntarily abides and shall specify those parts of said code that deviate and the reasons therefor; (xv) the location where the public may find the Corporate Governance Code to which the issuer is subject in accordance with the previous subparagraphs; (xvi) content and description of the way the issuer’s corporate bodies function, as well as the committees created thereby; and (xvii) a description of the diversity policy applied by the company in relation to its management and supervisory bodies, namely, in terms of age, sex, qualifications, and professional background, the objectives of such diversity policy, the way it was applied, and results in the period of reference. In case a company does not apply a diversity policy, it must explain in its report why it does not apply such policy. However, this requirement does not apply to SMEs.

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Issuers of shares admitted to trading on a regulated market subject to Portuguese law as their personal law shall disclose information on their corporate governance structure and practices in the terms laid down in a regulation of the CMVM, which shall include the abovementioned information. Conversely, disclosure requirements for the annual governance report are further regulated by CMVM Regulation no. 4/2013, which includes a model corporate governance report. Finally, the Corporate Governance Code includes a set of recommendations concerning the organisational structure and corporate bodies of public companies, as well as more specific issues such as remunerations, auditing, risk management, conflicts of interest and related party transactions.

Potential risks, liabilities and pitfalls The process of going public through an IPO may present relevant risks and potential liabilities to the offeree company and other parties involved. On the one hand, the IPO process and the admission to trading on a regulated market imply additional costs associated with the listing application and annual listing fees. Issuers with listed securities are required to pay any fee charged by Euronext Lisbon pursuant to the conditions set forth by Euronext. These fees are determined on the same terms as in other Euronext Markets abroad and may vary in accordance with the type of securities admitted to listing, the nature of the issuer or the amount of market capitalisation. On the other hand, IPOs entail further liabilities related to the offering of shares to the public, beginning with those that necessarily arise with the publication of a prospectus. Under Portuguese securities law, the issuer and the members of its management bodies are liable for damages caused by non-compliance with the contents of the prospectus, except in the case that they prove to have acted without fault. In certain cases, the issuer may even face a strict liability rule. Equally liable are: members of the auditing body, accounting firms, chartered accountants and any other individuals who have certified or, in any other way, verified the accounting documents on which the prospectus is based; financial intermediaries in charge of assisting with the offer; and promoters of the offer and any other entities that accept being appointed in the prospectus as responsible for any information, forecast or study included therein. Other than the liabilities directly connected with the offer and the publication of the prospectus, companies which undergo IPOs are also faced with the general costs and potential liabilities associated with their public and listed company status, which include the ongoing costs of complying with the strict corporate governance, periodic reporting and aggravated disclosure requirements described above, as well as the potential liabilities arising out of the application of, for instance, the framework on market abuse. Furthermore, both public companies and their shareholders must take into consideration the specificities of the legislation governing the former type of companies, including the provisions regarding mandatory takeovers, according to which anyone whose holding in a public company exceeds one third or one half of the voting rights attributable to the share capital has the obligation of launching a takeover for the totality of shares and other securities issued by the company that granted the right to their subscription or acquisition. Shareholders of the relevant company shall thus take due consideration of these rules and structure the transaction in a manner that minimises risks in this respect.

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Endnotes 1. For an empirical analysis of the evolution of IPOs in Portugal, see Maria Rosa Borges, Underpricing of Initial Public Offerings: The Case of Portugal, Int Adv Econ Res (2007) 13:65–80 and João Duque, Miguel Almeida, Ownership Structure and Initial Public Offerings in Small Economies: The Case of Portugal, Paper for the ABN- AMBRO International Conference on Initial Public Offerings (2000). 2. According to Euronext Lisbon, in 2019 four IPOs took place, all of which were in relation to real estate investment vehicles: Multi24, Sociedade Especial de Investimento Imobiliário de Capital Fixo, SICAFI; Adelphi Gere – Sociedade Especial de Investimento Imobiliário de Capital Fixo, SICAFI; and Monumental Residence – Sociedade Especial de Investimento Imobiliário de Capital Fixo, SICAFI (three fixed capital real estate investment trusts specialised in the ownership, development and management of real estate assets) were admitted to trading in Euronext Access, as well as Retail Properties – Fundo Especial de Investimento Imobiliario Fechado, a special real estate investment trust managed by Atlantic – Sociedade Gestora de Fundos de Investimento Imobiliários, S.A.; while Merlin Properties SOCIMI, S.A., a Real Estate Investment Trust (“REIT”), was admitted to trading in the Euronext Lisbon regulated market (according to information available at https://live.euronext.com/en/markets/lisbon). 3. Approved by Decree-Law no. 489/99, of 13 November, as amended. 4. Official Journal L. 168, 30/06/2017, p. 12. 5. Commission Delegated Regulation (EU) 2019/979 of 14 March 2019 supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council with regard to regulatory technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus, and the notification portal, and repealing Commission Delegated Regulation (EU) 382/2014 and Commission Delegated Regulation (EU) 2016/301, and Commission Delegated Regulation (EU) 2019/980 of 14 March 2019 supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council as regards the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Commission Regulation (EC) 809/2004. 6. Portuguese law provides for a list of entities which may be held civilly responsible for prospectuses – please refer to section 5 in this respect. 7. Available at https://www.euronext.com/en/regulation/harmonised-rules. 8. Available at https://www.euronext.com/en/regulation/lisbon. 9. Regulation (EU) 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse. 10. Official Journal L. 243, 11/09/2002, p. 1. 11. As defined by Decree-Law no. 298/92, of 31 December –Regime Geral das Instituições de Crédito e Sociedade Financeiras, as amended. 12. Approved by Decree-Law no. 262/86, of 2 September, as amended. 13. Available at https://cgov.pt/images/ficheiros/2018/codigo_de_governo_das_sociedades _ipcg_vf.pdf. This Corporate Governance Code resulted from a protocol between the CMVM and the IPCG and includes the contribution of the AEM – Associação de Empresas Emitentes de Valores Cotados.

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Eduardo Paulino Tel: +351 213 826 603 / Email: [email protected] Eduardo Paulino joined the firm in 2002 and became a partner in 2015. He is the head of a corporate team. Eduardo’s main areas of practice include capital markets, company and corporate law and banking and finance. He specialises in M&A, public offerings, project finance and privatisations and is also experienced in banking and finance law matters and compliance. He has recently been involved in complex high-profile M&A transactions in the banking sector and is in the process of recapitalisation of the Portuguese banking sector. Eduardo regularly acts in equity and debt public and private offerings, public takeover processes in the banking, telecommunications, construction, paper and media sectors, as well as in privatisations of Portuguese and foreign companies and complex financing transactions. Eduardo also participates in various interdisciplinary teams working in domestic and cross-border M&A transactions, acting both for Portuguese and foreign clients.

Margarida Torres Gama Tel: +351 213 826 603 / Email: [email protected] Margarida Torres Gama joined the firm in 2007. She is a member of the corporate and M&A and capital markets team and of the insurance, reinsurance and pension fund team. Margarida specialises in mergers, acquisitions and joint ventures, acting both for Portuguese and foreign clients, as well as on the provision of general legal advice to companies mainly in the areas of commercial, corporate, securities, and insurance law. Margarida has also been involved in several transactions regarding the issue and offering of equity and debt securities.

Inês Magalhães Correia Tel: +351 213 826 613 / Email: [email protected] Inês Magalhães Correia joined the firm in March 2015. She is a member of the corporate and M&A and capital markets team. She was also part of the litigation and arbitration team. Inês provides regular legal advice to national and international clients mainly in the areas of commercial and corporate law, corporate governance and securities law and specialises in M&A transactions, often cross-border, such as share deals, asset deals, partnerships, restructurings, and sales of non- performing loans and distressed assets. In the field of securities law and capital markets, Inês regularly assists in transactions regarding the issue and offering of equity and debt securities, including medium term notes and covered bonds.

Morais Leitão, Galvão Teles, Soares da Silva & Associados Rua Castilho, 165, 1070-050 Lisboa, Portugal Tel: +351 213 817 400 / URL: www.mlgts.pt

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Wee Woon Hong Opal Lawyers LLC

Introduction Going public signifies corporate success and marks a major milestone achieved for any private company. In Singapore, it is celebrated with the striking of the gong at the countdown to nine o’clock on the morning of the first trading day of shares of the listed company at the Singapore Exchange Securities Trading Limited (“SGX”), followed by a euphoric dinner in the night. Most private companies will reach a stage in their corporate development when their growth is constrained by their available capital. Other than obtaining loan financing, opting to seek listing of their shares on a stock exchange is an alternative option to enable the company access to public funds as well as to increase its public profile, thus promoting its corporate branding and image, which can in turn augment its business. An initial public offering (“IPO”) of the shares of a private company involves the listing and quotation of its shares on either the Mainboard of the SGX or its Catalist board, the sponsor-supervised listing platform of the SGX. During the IPO exercise, a company will offer new shares and/or existing shares held by its shareholders to the general public for subscription. All new shares issued at IPO and existing shares (subject to a moratorium period over certain existing shares of the founders and promoters) are tradable on the SGX, either on the Mainboard or the Catalist board, from the first trading day. Why do companies choose to list on SGX? Singapore as a destination with political and economic stability. Given the vast changes which have swept across the political landscapes of many developed, and developing, countries in recent years, Singapore’s political stability is well appreciated and favoured among listed firms and investors. Singapore’s stable economic and financial markets are also important considerations, both for companies seeking listing on the SGX and international investors in their decision to invest in a Singapore publicly listed company. The emerging Asia. The emerging market in Asia is a wave that has gained traction and is expected to continue to rise in the next few decades. However, some of these markets tend to be affected by currency volatility and unpredictable social issues and changes to political landscapes from time to time. Notwithstanding, each of these emerging markets has immense potential to become an economic powerhouse, due to its large domestic market that is fuelled by the fast pace of growth in its domestic consumption and economic development. Successful companies in these emerging markets seeking to list on an internationally recognised stock exchange will consider the SGX, as it is able to access international investors through its stock markets. SGX is the Asian gateway. In Asia, the SGX offers an edge over its regional rivals with its stock market in Singapore, being reputed to be a well-regulated international financial

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Opal Lawyers LLC Singapore centre, which prides itself on promoting high standards of corporate governance practices for its listed companies. This gives confidence to funds and international investors to invest in public companies that are listed on the SGX. In addition, an IPO exercise in Singapore requires the listing applicant to meet the international standard of disclosure requirements, with a high emphasis on transparency and integrity of the management team. This enables the investing public to assess the risk involved in making its investments. Access to institutional investors. A high proportion of companies listed on the SGX have foreign-based operations and the SGX continues to attract foreign companies to seek listing in Singapore. Due to the quick and efficient secondary fundraising process in Singapore, the listed company can continue to tap and raise funds from the public after its initial fundraising exercise at IPO. With a stable Singapore currency, no exchange control, low tax rate regime and a strong reputation as an international financial centre, institutional investors and international funds are attracted to invest in stocks listed on the SGX.

The IPO process: Steps, timing and parties and market practice Parties involved in an IPO exercise The parties involved in the IPO exercise are mainly: Company’s management team. This includes the key management personnel such as Executive Directors, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and other key members of the management team. Issue manager (for Mainboard listing). Must be either a member company of the SGX-ST, a bank, a merchant bank or any other financial institution approved by SGX to manage the IPO process and liaise with SGX on all matters arising from the application for listing. Sponsor (for Catalist listing). A qualified professional firm engaged in corporate finance and compliance advisory work who will assess the suitability of the company seeking listing on the Catalist board of the SGX, and to assume a continuous supervisory role to ensure the listed company’s compliance with their continuing obligations post-listing. They will also manage the IPO process and liaise with SGX on all matters arising from the application for listing. Underwriter and/or placement agent. An underwriter and/or placement agent is a licensed broker firm who will promote and sell all of the shares that are being offered in the IPO. In return, the company will pay the underwriter and/or placement agent a commission fee based on a certain percentage of the IPO proceeds raised during the IPO. IPO lawyers. A qualified team of lawyers, who will advise on all of the legal aspects of the listing application such as material contracts, litigation, intellectual property and information systems rights, and other regulatory issues. They assist in the legal due diligence process and the drafting of the non-financial sections of the prospectus. They will also advise the company regarding the disclosure requirements in a listing exercise. Reporting accountants/independent auditors. A qualified professional audit firm who will perform an independent audit on the latest three years of financial statements of the company, which will be attached as part of the prospectus or offer document to provide information to the potential investors regarding the financial performance of the company. They can also provide the company with an initial evaluation of its readiness to go public and assist in advising the company of the necessary requirements relating to its financial controls and other accounting aspects and matters that are important to a listed company. IPO process Planning and kick off. When a company decides to go public, the initial stage for the IPO process is the planning and preparation stage where the IPO professional team is selected,

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Opal Lawyers LLC Singapore followed by a kick-off meeting involving the IPO professional team and management team. During the kick-off meeting, the issue manager or sponsor will present the IPO indicative timetable and draw up the action plans and deliverables required by the relevant timelines, discuss the due diligence requirements, identify the critical issues that will affect the IPO process and map out the proposed solutions. Each of the other professional team (including the lawyers and auditors) will present their work requirements during the kick-off meeting. Due diligence process and preparation of the documentation. The execution stage begins with a due diligence exercise where the due diligence process is conducted on the listing entities to ensure the prospectus or offer document complies with the legal or accounting requirements, and prepare the disclosure of the material information. The company will also need to undertake a corporate restructuring exercise to form the holding company (being the listing entity) which will hold the group of companies. The lawyers will work with the company to draft the prospectus or offer document based on the specific requirements of the Fifth Schedule of the Securities and Futures Regulation. Drafting and verification meetings. The management team and IPO professional team will meet regularly for drafting meetings, which involves the drafting and review of the respective sections required for the prospectus or offer document and the collation of the source documents to support the contents. Due diligence verification meetings will be held to check and verify the contents of the final draft prospectus or offer document prior to the submission to the SGX, lodgement or registration process. This is to ensure that the material statements of fact or opinion contained in the prospectus or offer document are complete and accurate. Submission to the SGX. The issue manager or sponsor will submit the draft prospectus or offer document to the SGX to seek its approval for the listing of the company. The SGX will review the application and raise queries to the issue manager or sponsor, who will work with the company and other IPO professional team to address these queries in order to obtain the listing approval from the SGX. Once the listing approval is obtained, the company will then complete the restructuring exercise and convert the status of the company from a private to a public company to prepare for the next stage. Lodgement and registration of the prospectus or offer document. After the listing approval has been obtained from the SGX, the prospectus will be lodged on the website of MAS OPERA (for Mainboard listing) or SGX Catalodge (for Catalist listing). In the next two weeks after lodgement (being the “exposure period”), the prospectus or offer document will be available for public comment. This will provide an avenue for the public to air any serious concerns they may have, which serves as an additional avenue to safeguard the public interest for the listing of the company. After clearing the exposure period, the company can proceed to register its prospectus or offer document and launch its offer for shares to the public. Listing. After the close of the offer for shares, the company will be listed on either the Mainboard or the Catalist (as the case may be) and commence trading of its shares thereafter, which will generally take place around one week after the launch of the offer for its shares. Timeline and preparation The timeline for an IPO process varies for different companies. Generally, the pre-submission process will take about four to nine months after the kick-off meeting (depending on the readiness of the listing applicant) and the listing approval stage can take between two to three months (depending on the complexity of the listing group and issues arising). Quite often, an IPO process can take in excess of 12 months from the kick-off meeting to complete, and it is not uncommon for delays and postponements to the submission of the listing application to the SGX, as the pre-submission work for the IPO has not been completed.

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The key factors affecting the timelines of an IPO process are the readiness of the listing applicant for the IPO exercise and the commitment of the management team. Most of the time, the management team does not realise the extent of the time and resources commitment required for an IPO exercise. One of the common issues for companies facing delays in an IPO exercise is that the audit work for the last three financial years cannot be completed in time as the operational and accounting systems of the group seeking listing are not sufficiently robust to pass the rigorous audit process ofthe independent auditors. The IPO process will become very costly to the listing applicant when time delays occur during the IPO exercise. Other than facing cost overruns due to the additional work to be performed by the IPO professional team arising from the time delay, the management team will also not be able to use the additional time and resources that have been committed to the IPO process to otherwise generate productive business and revenues for the group. Hence, the key to success for an efficient IPO exercise lies in the management team’s deep understanding of the work requirements, coupled with its commitment and stamina to complete the IPO process.

Regulatory architecture: Overview of the regulators and key regulations Regulatory framework The organisations involved in the regulatory framework for the listing process in Singapore and their respective roles are as follows:

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The Monetary Authority of Singapore (“MAS”) is Singapore’s de facto central bank, which is established under the Monetary Authority of Singapore Act. The MAS is the licensing authority for holders of a capital markets services licence, who are permitted to carry on a business in the regulated activities of dealing in securities, trading in futures contracts, leveraged foreign exchange trading, fund management, advising on corporate finance, securities financing, real estate investment trust management, and providing custodial services for securities. SGX is under the supervision of the MAS in relation to the listing of companies and other securities matters in Singapore. SGX is the primary regulator, whose approval must be obtained before a company can be listed in Singapore. It continues to regulate listed companies after their listing to ensure that they comply with the continuing listing obligations. Where a company is listed on the Catalist board, the sponsors will assist the SGX in monitoring these Catalist issuers in regard to their compliance with the listing rules. These sponsors are in turn supervised by the SGX. Listed companies are required to comply with listing rules, which are designed to promote the high standard of disclosure and corporate governance expected of listed companies. Listing and admission criteria A company seeking a listing of its shares on the SGX Mainboard or SGX Catalist will need to meet the conditions set out in Rule 210 of the Mainboard Rules of the SGX, or Rule 406 of the Catalist Rules of the SGX, respectively. The listing and admission criteria for a company seeking Mainboard listing is as follows:

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The listing and admission criteria for a company seeking Catalist listing is as follows:

Disclosure requirements for a prospectus or offer document Under the Singapore Securities and Futures Act, a prospectus or offer document serves as an important document which is required to contain true and full disclosure of the company seeking a listing. Some of the important disclosures that are required to be made in the prospectus or offer document include: • the identity of the company’s directors, key executives, professional advisors and agents; • the offer statistics and timetable; • key information, such as selected financial data, use of proceeds, risk factors and capitalisation and indebtedness; • information on the company, including the company’s history, business overview, group structure and fixed assets; • the company’s financial information, operating and financial review and prospects, such as the company’s operating results, liquidity and capital resources, trend information, profit forecasts or estimates; • research and development; • information on the company’s substantial shareholders, directors, key executives and employees including their interest in shares, background information and management reporting structure; • interested person transactions (“IPTs”) and conflicts of interest; • litigation matters; • information on the offer and listing, including the plan of distribution, dilution effect and expenses of the offer; and • other additional information of the company, such as the company’s share capital, relevant provisions of the company’s constitutional documents and material contracts.

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Public company responsibilities The SGX is the primary regulator having oversight of the securities market and compliance of the continuing listing obligations by issuers in Singapore. Companies listed in Singapore are required to ensure full, accurate and timely disclosures of material information in order to maintain a fair, orderly and efficient market for the trading of their shares. In addition, listed companies are required to comply with the continuing listing obligations set out in the SGX listing rules, which include the changes in share capital, IPTs, acquisitions and realisations by the issuer, takeovers and the issue of circulars and annual reports to shareholders. Continuing listing obligations Following the listing on the SGX, a publicly listed company is obliged to comply with the provisions of the SGX listing rules: Mainboard listed companies must comply with Mainboard Rules; and Catalist listed companies must comply with Catalist Rules. Some of the continuing listing obligations of a listed company in Singapore under SGX listing rules are outlined below: Matters requiring immediate public announcements. A listed company is required to keep its shareholders well informed of any material information relating to the company’s business activities in order to avoid the establishment of a false market in its securities. The following is a non-exclusive list of matters which require immediate public announcement: (a) a joint venture, merger or acquisition; (b) the declaration or omission of dividends or the determination of earnings; (c) firm evidence of significant improvement or deterioration in near-term earnings prospects; (d) a sub-division of shares or stock dividends; (e) the acquisition or loss of a significant contract; (f) the purchase or sale of a significant asset; (g) a significant new product or discovery; (h) the public or private sale of a significant amount of additional securities; (i) a change in effective control or a significant change in management; (j) a call of securities for redemption; (k) the borrowing of a significant amount of funds; (l) events of default under financing or sale agreements; (m) a significant litigation; (n) a significant change in capital investment plans; (o) a significant dispute or disputes with sub-contractors, customers or suppliers, or with any parties; (p) a tender offer for another company’s securities; or (q) a valuation of real assets that has a significant impact on financial position and/or performance. Disclosure of other price-sensitive relevant information. All information which is necessary to avoid the establishment of a false market or is likely to materially affect the price of securities must be disclosed immediately. Timely disclosure of price-sensitive information is the foundation of SGX’s regulatory policy. To ensure that such information is released to the market on a timely basis, listed companies are obliged to comply with the rules relating to corporate disclosure in the SGX listing rules. Disclosure of substantial shareholders’ shareholding. A listed company must maintain a register of substantial shareholders, which contains the names of the company’s substantial

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Opal Lawyers LLC Singapore shareholders together with details of their interest in the shares of the company. A substantial shareholder is a person who has an interest in 5% or more of the voting shares of a company. “Interest” in shares or securities is not restricted to those registered in the name of the shareholder only (i.e. direct interest). It includes beneficial ownership through nominees or a trust as well as control over voting or disposition of a share (i.e. indirect interest). Disclosure of directors’ shareholdings. Directors of a listed company are required to notify the company of their direct and indirect interests in its shares and securities and subsequent changes thereafter. The listed company must also maintain a register of directors’ shareholdings. Interested Person Transaction. The objective of disclosure in relation to an IPT is to guard against the risk that such interested persons can influence the listed company to enter into transactions with other interested persons (including directors, senior management, controlling shareholders and their associates) which may adversely affect the listed company. Hence, any transaction entered between the listed company with interested persons will be required to be announced if the transaction value is equal to or more than 3% of the listed company’s latest net tangible assets, and to obtain shareholders’ approval for that transaction value which exceeds 5% or more. Periodic reporting. Listed companies are required to announce their financial statements for the relevant financial period within 45 days after the end of that financial period. Their financial statements for the full financial year are required to be announced within 60 days after the end of the financial year end. Listed companies must hold their annual general meeting within four months after the end of the financial year, during which their annual reports will be tabled for approval by their shareholders. Sustainability reporting. In June 2016, SGX introduced sustainability reporting on a “comply or explain” basis where listed companies must publish a sustainability report at least once a year covering: the material environmental, social and governance (“ESG”) factors that affect their business strategies; their policies, practices and performance; their targets; their sustainability reporting framework; and a board statement on the organisation’s sustainability actions. The new requirements took effect from the financial year ending 31 December 2017. Code of Corporate Governance Listed companies are required to observe the Code of Corporate Governance and disclose in their annual reports the corporate governance practices adopted by them. Although the Code of Corporate Governance, which comes under the purview of the MAS and SGX, has no force of law, listed companies are required to explain any deviations from any principles and guidelines.

Potential risks, liabilities and pitfalls In connection with an IPO, lapses which attract liability under the Securities and Futures Act include making false or misleading statements in the prospectus or offer document, omission of material information required to be included in the prospectus or offer document, as well as new circumstances which have arisen since the lodgement of the prospectus or offer document. Lapses may also be discovered during the period between the registration of the prospectus or offer document and close of the offer. For instance, if it is confirmed that thereare misstatements in the prospectus or offer document which were discovered after the launch of the IPO but prior to the close of the offer, the listing applicant can withdraw the offer and refund application monies to investors.

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Due diligence review and disclosure requirements Due diligence plays an important role in the IPO process from the kick-off meeting through to the submission of the listing application to the SGX, as well as the lodgement and registration of the prospectus or offer document. An effective due diligence process supported by the relevant source documents is essential, especially if the issue manager or any other relevant party wishes to rely on the due diligence defence under the Securities and Futures Act when the need arises. An effective due diligence process also helps issue managers and sponsors to identify issues and concerns that must be addressed, and provides adequate disclosures in the prospectus or offer document. The IPO process requires that the professional advisers exercise great care and diligence to ensure that the disclosures in the prospectus or offer document in relation to the IPO and the listing group are true, accurate and complete. As such, it is important to put in place an efficient process through which material and relevant information relating to the listing group is made available by the management team to the IPO professionals for disclosure in the prospectus or offer document. This process is a continuing process from the kick-off meeting until the first trading day of the shares of the listed company. The statutory prescribed information to be disclosed in the prospectus or offer document is found in the Fifth Schedule of the Securities and Futures Regulation. The Association of Banks in Singapore also issued its latest set of Listings Due Diligence Guidelines in 2016 to provide guidance to issue managers and sponsors in their conduct of the due diligence work in the listing process. Persons liable for matters arising in the listing exercise Under the Securities and Futures Act, persons who could be liable for any false or misleading statement in the prospectus include: (a) the issuer and its directors; (b) the selling shareholders (if any) and the directors of the selling shareholders (if the selling shareholder is a corporate entity); (c) the issue manager; (d) the underwriter or placement agent; (e) persons considered to be experts for the purposes of the prospectus; and (f) any other person who intentionally or recklessly makes a false or misleading statement, or omits any information or circumstance. Directors of the listed company are subject to collective and individual legal responsibility for the contents of the prospectus or offer document, and they must ensure that all material information of the listing group is fully disclosed and statements therein are true, complete and accurate in all material respects. Directors of the listed company must also ensure that the listing group has adequate internal controls and risk management systems to safeguard the assets and finances of the listed group, as they are responsible for the proper corporate governance and accountability of the listed group. In addition, the issue manager or sponsor is primarily responsible for ensuring that the listing applicant satisfies all of the listing criteria and conditions under the SGX listing rules. The issue manager in a Mainboard listing is in charge of the overall coordination of the IPO process. This role is undertaken by the sponsor in a listing on the Catalist board. They are involved in the selection of other suitable professional advisers and experts, and a commercial investigator to assist in the IPO exercise.

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Liability for issuing a misleading prospectus If there is any false or misleading statement or non-disclosure of a material fact in a prospectus or offer document, the responsible persons listed above will be subject to criminal liability. In addition, these responsible persons are subject to civil liability to pay compensation to all persons who subscribe to or purchase shares in the listed company arising from any loss or damage sustained by reason of the false or misleading statement or non-disclosure. Under the Securities and Futures Act, the MAS is empowered to stop an offer if,inter alia, the prospectus or offer document: (i) contains any false or misleading statement; (ii) has omitted any material information that should be included in a prospectus or offer document; or (iii) does not comply with the Securities and Futures Act in any other way. Although the disclosure-based regime under the Securities and Futures Act places responsibility on issuers and their professional advisers to ensure that prospectuses or offer documents contain adequate and accurate information for investors, the MAS has the power to issue a stop order if the same is discovered to be deficient after registration.

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Wee Woon Hong Tel: +65 6932 2760 / Email: [email protected] Wee Woon Hong is the Principal Partner of Opal Lawyers LLC and her legal practice has focused on the area of corporate finance work. She has more than 16 years of legal experience handling IPO listing work and listing compliance work for Singapore public listed companies. Over the years, she has handled the legal work acting either in the role of Solicitors to the Invitation or Solicitors to the Issue Manager, Underwriter and Placement Agent for the IPO listing of more than 30 companies that were listed on the SGX-ST. In addition, she also handles both private and public M&A, equity capital market transactions and corporate actions of public listed companies.

Opal Lawyers LLC 20 Collyer Quay #01-02, Singapore 049319 Tel: +65 6932 2760 / Fax: +65 6536 0688 / URL: www.opal.sg

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Dr. Alexander von Jeinsen & Annette Weber Bär & Karrer Ltd.

Introduction For any company, the decision to go public is a key milestone in its development. By doing so, it enters the public arena and gets access to the capital market and a much broader investor base. However, a public company is subject to public scrutiny, and must also fulfil stricter regulatory requirements than a privately held company. To avoid unexpected difficulties or even failure of the project, an IPO candidate, its shareholders and its executive management should prepare the flotation carefully and familiarise themselves with the regulatory requirements. One of the first steps during the preparatory phase is the selection of the listing venue, where Switzerland offers very attractive conditions through a combination of its strong financial centre and the stable and issuer-friendly Swiss legal and regulatory regime. This is the case not only for companies which were founded in Switzerland, but also for foreign issuers. In 2018, for instance, the two largest Swiss IPOs (CEVA Logistics AG and SIG Combibloc Group AG) saw the ultimate holding company of the Group migrate to Switzerland solely for the IPO, underlining the attractiveness of the Swiss market. With a variety of listed companies across all industries, SIX Swiss Exchange is the main and leading stock exchange in Switzerland. It offers a liquid market with state-of-the-art trading conditions. Given its importance, and unless indicated otherwise, references in this contribution to listing requirements and reporting obligations refer to the rules set by SIX Swiss Exchange. The smaller BX Swiss exchange is more focused on Swiss issuers. Switzerland has seen strong IPO activity over the past two years, with 2018 being the most active year in a decade. In 2018 and 2019, the following companies listed on SIX Swiss Exchange with an initial market capitalisation of more than CHF 1 billion: • CEVA Logistics AG (CHF 1.4 billion). • SIG Combibloc Group AG (CHF 3.9 billion). • Medacta Group SA (CHF 1.9 billion). • Alcon Inc. (CHF 28.3 billion). • Stadler Rail AG (CHF 4.3 billion). • SoftwareONE Holding AG (CHF 2.9 billion). Until 31 December 2019, the regulatory framework for Swiss IPOs has been primarily determined by the self-regulation of the Swiss stock exchanges with limited statutory provisions regarding the offering of shares to the public. In particular, there wasno regulatory authority which reviewed and needed to approve the issue prospectus. On 1 January 2020, the new Swiss Financial Services Act (“FinSA”) entered into force, resulting in a fundamental change of the regulatory environment in Switzerland. For the first

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Bär & Karrer Ltd. Switzerland time, the FinSA and the implementing ordinance (the Swiss Financial Services Ordinance (“FinSO”)) provide for detailed requirements regarding the content of a prospectus and its review by the new Swiss Financial Market Supervisory Authority (“FINMA”)-licensed review bodies. Although well-known on an international level, the new regime is a novelty in Switzerland where, until now, SIX Exchange Regulation merely checked whether a prospectus formally fulfilled the requirements set by SIX Swiss Exchange. Given, however, that also under the ‘old’ regime the market practice already adhered to international disclosure standards, it is not expected that this change will fundamentally change the content of Swiss IPO prospectuses or the timeline of the preparation for an IPO. Pursuant to the applicable transitional provisions, the new regulations will only become applicable on 1 October 2020 at the earliest, or six months after the licensing of the first review body. Until the first review body has been licensed by FINMA, all IPOs must be conducted following the ‘old’ regime.

The IPO process: Steps, timing and parties and market practice While the IPO process depends significantly on the IPO candidate and the envisaged structure (primary vs. secondary offering and/or a so-called “complex financial history”), the process can broadly be divided into three phases (with a fourth phase following the listing): • Phase I: Preparation (approximately four to six months prior to the first day of trading) During this phase, the current shareholders and the issuer, together with their advisors, set up the structure, and take and implement the strategic decisions for the IPO-readiness of the company: • Selection of advisors: In a first step, the issuer chooses its advisers, which include in particular the underwriting banks, the legal advisors to the issuer and to the underwriters, the auditors, and often a pre-IPO advisor. Typically (and, in particular, if the offering is structured as a Rule 144A offering), each issuer and underwriter is advised by two law firms: a Swiss law firm for Swiss law and SIX rules-related matters, and an international counsel, whose task is primarily to ensure compliance with international and U.S. securities laws. Depending on the structure, a selling shareholder might also engage separate counsel. In most cases, the issuer appoints further advisors, such as a specialised PR firm to assist with the marketing. • Structuring: The underwriting banks advise the issuer and its current shareholders on the structuring of the offering and, in particular, whether the offering should be structured as a primary offering (sale of newly created shares) or secondary offering (sale of existing shares only), or a combination of the two. In case the issuer is not a Swiss company, the structuring includes a decision on whether a foreign entity should list its shares on SIX Swiss Exchange or whether the company should migrate to Switzerland for the IPO. This decision is typically driven by marketing and tax considerations. Structuring may also include the reorganisation of a group of companies, such as the establishment of a new holding company. • Development of equity story: Together with the issuer, the underwriters develop the equity story to market the shares. A key element of this workstream is meetings between the issuer and potential investors on a confidential basis to test the water (so-called “pilot fishing” and “early-look meetings”). In case the issuer has publicly traded debt outstanding (in particular, high-yield bonds), these meetings must comply with the relevant requirements regarding the disclosure of price- relevant information; in particular, under the European Market Abuse Regulation (“MAR”), if the bonds are traded at an EU venue. The development of the equity

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story ultimately leads to the issuer presenting itself to the underwriters’ analysts, following which the analysts will prepare and publish research reports for the investors. These reports help to attract the attention of investors for the IPO, and are one of the key elements of the marketing strategy. • Corporate governance: One of the key tasks of the issuer’s Swiss legal counsel is advising the issuer regarding the corporate governance set-up. If the issuer has issued several classes of shares, any preferred share classes will typically be converted into common shares prior to listing, as preferred shares are not deemed to be good corporate governance for public companies. Other corporate governance measures include the adoption of the mandatory Swiss ‘say on pay’ rules (see below) and amending the constitutional documents to ensure compliance with mandatorily applicable Swiss law as well as best practice for public companies. Often, the existing shareholders appoint new members of the board of directors as of the first day of trading. In this context, it is advisable to give due consideration to the most recent guidelines published by the prominent proxy advisors and the Swiss standards for corporate governance; in particular, with regard to the independence of board members. Under certain circumstances, issuers may also consider increasing the threshold for mandatory takeover bids from 33⅓% to up to 49% (opting up), or completely opting out of the mandatory takeover regime; typically, however, neither is well perceived by proxy advisors. • Financial statements: The issuer works closely together with the auditors for the preparation of the financial statements. Generally, a listing at the SIX Swiss Exchange requires a three-year track record evidenced by audited financial statements drawn up in accordance with one of the eligible accounting standards (see below). In certain situations, the preparation of pro forma financial statements may also become necessary. If this is the case, the preparation of these financial statements should be initiated as early in the process as possible. • Due diligence and prospectus: The underwriters, the legal advisors and the auditors conduct a detailed due diligence (business, legal and audit respectively) about the issuer. Based on the outcome of the due diligence and the equity story, the issuer’s legal counsel drafts the prospectus. Until now, the disclosure requirements were largely part of the self-regulation set by SIX Swiss Exchange. Under the new FinSA regime, the disclosure must comply with the requirements set out in the FinSA and FinSO which are, however, very similar to the SIX Swiss Exchange and also to EU standards. A Swiss prospectus should mainly cover: a summary; risk factors; information on the use of proceeds; information about dividends and dividend policy; information about the issuer (such as members of the board of directors and executive management, issuer’s business and share capital as well as its capitalisation and indebtedness) and about the issuer’s major shareholders; and information about the offering and the financial statements. Even though neither the SIX Swiss Exchange nor the FinSA/FinSO require an MD&A section, it is market practice to include such a section in an equity prospectus. • Underwriting agreement: The Swiss underwriters’ counsel drafts the underwriting agreement. This agreement lays down the main duties and rights of the underwriters and the issuer in connection with the IPO. Currently, it is market practice that the underwriters commit to a ‘soft underwriting’ so that they only commit to purchasing the shares upon pricing. The Swiss underwriters’ counsel also prepares

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ancillary agreements and documents, such as a share lending agreement for the over-allotment option (see below), the agreement among managers, and the various lock-up undertakings. Major shareholders, as well as the directors and managers of the issuer, typically sign lock-up undertakings to not sell their shares in the first months after the IPO. • Review of prospectus: The IPO prospectus must be filed with and reviewed by one of the review bodies for completeness, consistency and comprehensibility. Pursuant to the FinSA, the filing must be made at least 20 calendar days prior to publication. However, the IPO timetable should certainly allow for sufficient time to reflect on comments received from the review body and to refile the prospectus. • Listing formalities: The issuer must appoint a listing agent. While, until now, law firms could act as listing agents, the new listing rules adopted by SIX Swiss Exchange, subject to certain exceptions, require the listing agent to be a bank in the meaning of the Swiss Banking Act, a securities firm in the meaning of the Swiss Financial Institutions Act, or to have a corresponding authorisation in accordance with the law of the jurisdiction of its registered office. The listing agent is responsible for liaising with the SIX Swiss Exchange for submitting the listing application. Under the FinSA framework, the listing application must be filed with the SIX Exchange Regulation 10 trading days prior to the start of the bookbuilding compared to 20 trading days under the current framework. • Phase II: ITF and marketing (approximately four weeks) • Intention to float: The second phase is initiated by the issuer publishing an intention to float (“ITF”). During this phase, the issuer’s executive team and the underwriters market the issuer. The ITF does not yet contain detailed information about the IPO, but is meant to draw the attention of the market to, and create momentum for, the upcoming IPO. The research reports prepared by the analysts are distributed shortly after the publication of the ITF. • Roadshow and bookbuilding: If the IPO gains sufficient momentum, the issuer will ultimately sign the underwriting agreement with the banking syndicate and publish the prospectus. This marks the formal ‘launch’ of the IPO and is followed by a bookbuilding phase, during which the issuer’s executive management markets the company on a roadshow with the support of the underwriters. This shall ultimately lead to investors placing orders for the shares within the price range indicated in the prospectus. At the end of the roadshow, which also marks the end of the bookbuilding period, the underwriters evaluate at what price the shares may be placed with the investors. • Phase III: Execution • Allocation: At this stage, the heavy lifting has been done. After the roadshow/ bookbuilding, the underwriters calculate at what price all offered shares may be sold and, together with the issuer, allocate them to investors in accordance with their bids. The issuer and the underwriters execute a supplement to the underwriting agreement, which sets out the final offer price at which the shares are sold to the investors, and obliges the underwriters to purchase these shares and sell them to the investors. In addition, the issuer publishes a supplement to the prospectus, setting the final price for the offered shares. • Capital increase: In case of a primary offering, the issuer conducts a capital increase (typically one day prior to the first day of trading).

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• First day of trading: The ringing of a huge cowbell marks the start of the trading and is the highlight of the IPO process in Switzerland. It is, at the same time, the test for the issuer and the underwriters, as they see for the first time how the issuer’s shares are traded. • Settlement: The closing, i.e. the settlement, of the IPO occurs a few trading days after the first day of trading. • Phase IV: Stabilisation (during the first 30 days after the listing) After the first day of trading, one of the underwriters acts as the stabilisation agent. When placing the shares in the bookbuilding, the underwriters typically sell more shares to investors than they purchase from the issuer and/or the selling shareholder (typically 15% of the base size) so that these shares can be used to stabilise the market price during the first days of trading. These additional shares are, initially, not purchased from the issuer or a selling shareholder, but are lent by one or more major shareholders under a share lending arrangement. Whether or not the over-allotment option (also known as ‘greenshoe’) is exercised, then depends on the development of the share price (see below for more information on the safe harbour from the prohibition of market manipulation): • If the share price is not doing well, the stabilisation agent purchases shares in the market to stabilise the price. These shares are then returned to the lending shareholder(s). • If the stock is trading well, the stabilisation agent does not interfere in the market and ultimately either purchases the shares from the lending shareholder(s) or purchases shares from the issuer – which are created in (another) capital increase – and returns these to the respective share lenders.

Regulatory architecture: Overview of the regulators and key regulations Main regulators • The Swiss Financial Market Supervisory Authority (“FINMA”): FINMA is the independent regulatory body in Switzerland in charge of the overall supervision of the securities exchanges and the financial market as a whole. • Stock exchanges: Swiss stock exchanges have the power to adapt their own regulations based on the principle of self-regulation. FINMA supervises the stock exchanges and approves their rules. Within SIX Swiss Exchange, the Regulatory Board is the rule-making body and SIX Exchange Regulation enforces the SIX rules. The SIX Disclosure Office is primarily responsible for the supervision of the disclosure of major shareholdings. • Review bodies: Under the FinSA, one or more so-called “review bodies” have the responsibility to review prospectuses for completeness, consistency and comprehensibility. It is currently expected that both Swiss stock exchanges (i.e. SIX Swiss Exchange and BX Swiss) will seek the licensing of a review body; so far, however, no review body has been licensed. • The Swiss Takeover Board (“TOB”): The TOB enacts rules on public takeovers and share buybacks and supervises compliance with those rules. Key regulations • Since 1 January 2020, the FinSA and the FinSO are the key regulations for IPOs in Switzerland containing, inter alia, rules regarding the requirement to publish a prospectus when securities are offered to the public or shall be admitted to trading at a trading venue (exchange or multilateral trading facility) in Switzerland as well as its

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content and the review. The FinSA further contains rules on prospectus liability (see below) and on the recognition of foreign prospectuses. The FinSA also stipulates a requirement for the publication of a key information document (Basisinformationsblatt) in connection with the offering of certain securities to private clients. This is, however, not applicable for the offering of shares, i.e. in an IPO. • The Swiss Code of Obligations (“CO”) sets out the legal framework for stock corporations (Aktiengesellschaften). The CO further includes rules for listed companies with regard to the publication of annual reports. • The Ordinance against Excessive Compensation (“OaEC”) is an ordinance for Swiss listed companies which was adopted on an interim basis after the vote of the Swiss people on ‘say on pay’ rules (see below). The final version of the rules will be included in the CO in the future. • The Financial Market Infrastructure Act (“FMIA”) governs the organisation and conduct of the Swiss financial market. Among other things, it prohibits insider trading and market manipulation and requires shareholders with a shareholding of 3% or more to disclose their shareholding (see below). It also contains the main provisions for public takeovers. • The listing rules of SIX Swiss Exchange (the “SIX-Listing Rules”) lay down the main requirements for companies to list their shares on the SIX Swiss Exchange and to maintain the listing. The listing procedure for an IPO is governed by the Directive on the Procedures for Equity Securities. As long as the transitional provisions for the FinSA are applicable, different ‘Schemes’ set out the disclosure requirements fora listing prospectus under the ‘old’ regime.

Public company responsibilities Public companies in Switzerland are subject to several obligations which do not apply to private companies. These include, in particular, the Swiss ‘say on pay’ rules as well as reporting obligations relating to price-relevant information, management transactions and financial statements. In addition, shareholders of a Swiss public company are obliged to report shareholdings of 3% or more to the stock exchange and the issuer, which must subsequently arrange for the publication of such major shareholdings on the stock exchange’s website. These disclosures must be made by (and must identify) the beneficial owner of the shares, which is the person controlling the voting rights stemming from a shareholding and bearing the associated economic risk. The identification of the beneficial owner can be particularly complicated in complex private equity structures. In addition, shareholders of a Swiss public company are also obliged to launch a mandatory bid for all shares in case they acquire (alone or acting in concert) more than 33⅓% of the issuer’s voting rights – unless the articles of the issuer have increased this threshold (opt-up) or waived this obligation (opt-out). Say on pay Following a public vote on a ‘say on pay’ initiative in 2013, the Swiss Code of Obligations was supplemented by the OaEC, which is applicable to Swiss stock corporations if their shares are listed on a stock exchange in Switzerland or abroad. The OaEC primarily implements rules on the remuneration of directors and executive management, as well as the election of directors and an independent proxy. The key element of the OaEC is mandatory shareholder approval of the total compensation of both members of the board of directors and the executive management as well as potential members of an advisory board. The general meeting of shareholders must approve the

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Bär & Karrer Ltd. Switzerland total compensation for these corporate bodies by separate vote on an annual basis. Most companies do this vote prospectively, but retrospective approval is also permitted. Pursuant to the OaEC, the main principles for performance-based compensation, as well as for a management participation plan, must be set out in the company’s articles of association. Hence, changes to these principles also require shareholder approval. The OaEC also imposes limitations on severance payments, golden handshakes and payments in connection with M&A transactions. These requirements regarding the remuneration of the main corporate bodies are supplemented by the obligation to publish an annual remuneration report, which is typically part of the annual report. In addition, the OaEC sets out requirements for the election and maximum term of certain corporate bodies. All board members, the chairman, all members of the mandatory remuneration committee and an independent proxy must be elected by the shareholders on an annual basis. While, under Swiss law, however, the members of the executive management are not elected by the general meeting, but by the board of directors, the OaEC also prohibits notice periods for dismissing a member of the executive management in excess of one year. Ad hoc publicity In Switzerland, unlike many other jurisdictions, the rules on ad hoc publicity are not statutory obligations, but are set out in the listing rules of the stock exchanges. Nevertheless, these rules are largely comparable to the EU regime set out in the MAR. The SIX Swiss Exchange requires an issuer to inform the market of any facts which are capable of triggering a significant change in market prices and which have arisen in its sphere of activity. Typical examples include, inter alia, financial figures, personnel changes on the board of directors or management, mergers, takeovers, spin-offs, restructuring operations, changes of capital, takeover offers, significant changes in profits, profit collapses, profit warnings and financial restructurings. In principle, the notification must be made immediately, but the issuer may postpone publication if the price-sensitive fact is based on a plan or if the decision of the issuer and its dissemination could prejudice its legitimate interests. In this case, the issuer must ensure that the fact remains confidential, and must inform the market immediately in case of a leak. If an issuer decides to postpone the publication of a price-relevant fact, it is important to constantly monitor if the prerequisites for the postponement are still met, and to implement a contingency plan in case of a leak. Disclosure of management transactions Similar to the obligation for public companies regarding ad hoc disclosure, the rules on the disclosure of management transactions (director’s dealings) are also set out in the listing rules of the Swiss stock exchanges. The rules are largely similar and require issuers to ensure that both the members of the board of directors and the executive management report to the issuer transactions in the issuer’s equity securities, or in related financial instruments, which have a direct or indirect effect on such person’s assets. Related financial instruments comprise, in particular, derivatives or rights which provide for or permit the actual delivery of shares or cash settlement (e.g. as subscription rights). The reporting obligation includes transactions carried out by related parties if such transactions are carried out under the significant influence of the director or manager. The issuer (and not the director or manager) must then report the management transactions to the respective stock exchange, which publishes them on its website on an anonymous basis, i.e. without disclosing the name of the director or manager.

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Financial reporting Both Swiss stock exchanges require issuers to publish and file annual and biannual reports, which must be drawn up in accordance with one of the eligible accounting standards (those currently being IFRS, U.S. GAAP and Swiss GAAP FER). Quarterly reporting is not mandatory, but many public companies voluntarily publish quarterly results or some figures, in line with international standards. Corporate governance and sustainability reporting The main corporate governance code in Switzerland is the Swiss Code of Best Practice for Corporate Governance issued by economiesuisse, the largest umbrella organisation representing Swiss businesses. It is non-binding, but provides recommendations for good corporate standards in line with international business practices on a comply-or-explain basis. SIX-listed companies are also subject to the Directive on Information relating to Corporate Governance requiring disclosure on, e.g. group structure, major shareholders, changes of control, defence measures and compensation, in a separate section of the annual report on a comply-or-explain basis. It also permits issuers to voluntarily inform the SIX that they have prepared a sustainability report in accordance with an internationally recognised standard (opting-in), which then obliges the issuer to publish a sustainability report in accordance with the chosen standard. The BX Swiss has not published specific corporate governance or sustainability reporting requirements. In recent years, the recommendations of the prominent proxy advisors have also become more and more important for an issuer’s corporate governance set-up.

Potential risks, liabilities and pitfalls Prospectus liability Article 69 FinSA sets out the Swiss legal framework for prospectus liability. It provides that anyone who – without applying due care – makes statements in a prospectus, key information document or similar instrument which are incorrect, misleading or not compliant with the legal requirements is liable to the acquirers of the securities for any damage caused thereby. Hence, the scope of liable persons under this provision is relatively broad. The prospectus liability regime under the FinSA also introduced certain reliefs for statements made in the summary of the prospectus which shall only result in liability if they are misleading, incorrect or contradictory when read together with other parts of the prospectus. Also, so- called forward-looking statements only lead to liability if they are made against one’s better knowledge or without a disclaimer pointing the investor towards the uncertainty of future developments. The FinSA also introduced criminal liability for making false statements or omitting material facts in a prospectus with wilful intent. A claim may be brought not only by the original investors but also by the subsequent buyers in certain circumstances. However, Swiss law does not provide the possibility of a class action. It is important to note that, unlike in certain other regulatory regimes, prospectus liability under Swiss law applies not only to misstatements in the prospectus, but also to any other communication made in connection with an equity offering. This can include, in particular: mini-prospectuses (e.g. shareholders’ information); official notices and marketing presentations such as roadshow, early-look and pilot fishing presentations; invitations to shareholders’ meetings; and newspapers and any other media advertisements. In sum, every communication made in connection with or to promote an offering may potentially give rise to prospectus liability and should therefore be subject to a prudent level of scrutiny based on

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Bär & Karrer Ltd. Switzerland the so-called “publicity guidelines”. These guidelines are prepared by the lawyers as one of the first documents to ensure that all communications made by the issuer in connection with the IPO comply with applicable laws and to reduce the risk of a prospectus liability claim. Since Swiss prospectus liability attaches where due care has not been applied, a person potentially subject to a liability claim can avoid liability by proving that it acted diligently when preparing the prospectus or similar communications (due diligence defence). Since there is no official guideline as to the level of diligence, it is advisable to observe recognised market practice to verify the content of the prospectus and to ensure that the prospectus contains all, and does not omit any, material information. In this context, the lead banks typically conduct several due diligence calls with the management of the issuer and request comfort letters from the auditors as well as disclosure opinions from the lawyers. It has become market practice that the legal due diligence is led, and the disclosure opinions issued, by U.S. law firms if the offering comprises a ‘Rule 144A’ component. In case of a mere ‘Regulation S’ offering, the disclosure letters would typically be issued by the Swiss law firms, which would then also lead the legal due diligence. Swiss law does not formally limit or regulate communications or publicity during the IPO process. However, the prospectus liability regime influences the information that IPO candidates share with potential investors and, under Article 68 FinSA, advertisements made in connection with an IPO must be clearly identifiable as advertisements, must include a reference to the prospectus, and must be in line with the prospectus. Insider trading The Swiss regulations on the prohibition of insider dealing are set out in the FMIA, which provides for both a criminal insider trading offence and an administrative insider trading offence. Insider information is defined as confidential information whose disclosure would significantly affect the price of shares traded on an exchange in Switzerland, andboth provisions penalise: (i) the misuse of insider information through the purchase or sale of shares or the use of financial instruments derived from such shares; (ii) the communication of insider information; and (iii) the recommendation to purchase or sell such shares or financial instruments derived from such shares based on insider information to another person. The main difference between the criminal and the administrative offence is that the criminal offence requires the realisation of a pecuniary advantage and wilful intent, while the administrative offence merely requires that the offender ‘knows’ or ‘should have known’ that the fact is insider information, and does not require that a pecuniary advantage is realised. The criminal provision scales the penalties up to five years’ imprisonment or a monetary penalty. The administrative provision provides for a declaratory ruling or the publication of the supervisory ruling. Both provisions also allow the confiscation of a profit. The Financial Market Infrastructure Ordinance (“FMIO”) contains important safe harbours from the prohibition to communicate insider information. In particular, it is permissible to communicate insider information to a person if the communication is required with regard to the conclusion of a contract, and if the information holder: (i) makes it clear to the information recipient that the insider information may not be exploited; and (ii) documents the disclosure of the insider information and such clarification. In light of the prohibition of insider dealing, issuers should generally adopt an insider dealing policy outlining the sanctions resulting from insider dealing, and stipulate instances in which certain individuals are banned from trading in shares of the issuer (so-called

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“blocking periods”), typically in connection with the publication of financial results, as well as in cases of a postponement of an ad hoc disclosure. Market manipulation Similar to the prohibition of insider dealing, the FMIA distinguishes between a criminal and an administrative market abuse offence. Both provisions aim to penalise the manipulation of the share price, either by: (i) spreading false or misleading information; or (ii) executing fictitious transactions. The main difference between these provisions is that the criminal offence requires wilful behaviour by the offender and the intention of gaining a pecuniary advantage for themselves or for another, while the administrative offence merely requires that the offender ‘knows’ or ‘should have known’ that their acts gave false or misleading signals regarding the supply, demand or price of the securities. The criminal provision provides a maximum sentence of five years’ imprisonment. The penalties for the administrative offence are, as a general rule, the same as for the insider dealing provisions. Confiscation of a profit is also permitted under both provisions. The FMIO also contains certain safe harbours from the prohibition of market manipulation, which include a safe harbour for public buyback programs as well as for price stabilisation following a public placement of securities. Under these rules it is permissible, in particular, to use the shares placed as part of an over-allotment option (‘greenshoe’) to stabilise the price following an IPO if certain prerequisites are met. These include that the price stabilisation must be carried out within 30 days and may not be executed at a price that is higher than the issue price. Sanctions by the stock exchanges In addition to the statutory obligations, the Swiss stock exchanges can impose sanctions on issuers in case of violations of their respective obligations under the listing rules (such as violation of the ad hoc disclosure obligations or violation of rules regarding the disclosure of management transactions). These can include fines and the suspension of trading as well as, ultimately, a delisting.

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Dr. Alexander von Jeinsen Tel: +41 58 261 54 88 / Email: [email protected] Alexander von Jeinsen is a member of the Capital Markets, Financing and M&A practice groups at Bär & Karrer. He graduated from the University of Göttingen in 2009 (Dipl. Jur.) and was admitted to the German Bar in 2014. In 2011, he received his Master of Laws (LL.M.) degree from Columbia University and, in 2012, he received his doctoral degree (Dr. jur.) from the University of Göttingen. He also earned a Bachelor of Economics from the University of Göttingen in 2010. Alexander von Jeinsen’s practice focuses on a broad range of equity and debt capital markets transactions (in particular, IPOs) representing both underwriters and issuers, financing (in particular, LBO financing) and M&A transactions as well as general corporate law. He also advises clients in the FinTech space, in particular, in topics related to Blockchain/Distributed Ledger Technology, as well as in general corporate law. Alexander von Jeinsen is admitted to the German Bar and also admitted as a German lawyer to the Swiss courts.

Annette Weber Tel: +41 58 261 52 03 / Email: [email protected] Annette Weber is a member of the Capital Markets, M&A and General Corporate & Commercial practice groups at Bär & Karrer. She graduated from the University of Zurich in 2010 (lic. iur.) and was admitted to the Bar in 2013. She also received her Master of Laws (LL.M.) degree from Columbia University in 2018. Annette Weber’s practice focuses on capital markets law and M&A transactions as well as general contract, corporate and commercial law. She specialises and is regularly involved in equity capital markets transactions (rights offerings and IPO) as well as in debt capital markets transactions (both convertible bonds and straight bonds).

Bär & Karrer Ltd. Brandschenkestrasse 90, CH-8002 Zürich, Switzerland Tel: +41 58 261 50 00 / URL: www.baerkarrer.ch

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Pawel J. Szaja & Michael Scargill Shearman & Sterling (London) LLP

Introduction The decision for a private company to ‘go public’ may be based on a number of factors. An initial public offering (“IPO”) (including, in the case of the London Stock Exchange’s AIM, an admission to trading by way of placing) is likely to provide a private company with enhanced access to capital and liquidity and increase its public profile. It will also create an acquisition currency for the company to use in future transactions, which is an increasingly important consideration for companies as they look to accelerate growth through M&A. From a shareholder perspective, an IPO provides major shareholders with the opportunity to realise their investment by selling part (or potentially all) of their stake through the IPO. Once a company has decided to conduct an IPO, it will be faced with the decision of where to list. London has long been considered one of the preeminent locations for a company considering listing its shares on a public market. Despite the difficult market conditions and challenges of Brexit, in 2019 London retained its leading position, in terms of the number of IPOs and amounts raised, among all other European listing venues. Its deep and knowledgeable pool of institutional investors and stable and developed legal environment have laid the foundations for London’s IPO market to flourish. This has been supported by a group of internationally recognised advisers and other service providers. London’s equity markets are relatively sector-agnostic and attract companies from a broad range of industries. In 2019, there was a marked drop in the number of IPOs in London and the amounts raised by them when compared to 2018. According to PwC’s IPO Watch Europe 2019, there were 27 IPOs on the London Stock Exchange (“LSE”) (60% down on the 68 IPOs on the LSE in 2018) which raised £5.9bn (39% down on the £9.6bn raised by London IPOs in 2018). The biggest drop in 2019 was seen in the number of companies joining the LSE’s AIM (where there were 10 admissions compared to 34 in 2018). Brexit uncertainty, as well as difficult market conditions, had a significant and negative impact on IPO activity in London in the second half of 2019. In 2019, the financial, telecoms and consumer services sectors were represented bythe largest IPOs on the LSE but other sectors such as mining, oil and gas, retail and pharma also continued to generate either IPOs and/or introductions to the LSE markets (without a fundraising exercise).

Recent developments Brexit By far the most important development affecting IPOs in the UK has, of course, been the decision of the UK to leave the European Union (“EU”), a decision that finally took

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling (London) LLP United Kingdom effect on 31 January 2020. It is too early to assess the full impact of this decisionon the attractiveness of London as an IPO venue as during the implementation or transitional period, which has followed the UK’s exit from the EU and which is currently scheduled to end on 31 December 2020, EU law continues to apply in the UK. The UK Government has made a large number of changes to UK law (as it currently implements and includes EU law), including in relation to the prospectus, listing, transparency and market abuse regimes, and these changes will take effect from the end of the transitional period. These are designed to ensure that, in the absence of some new legal and regulatory relationship with the EU taking their place, those regimes will continue to operate effectively and broadly in line with the way in which they operated before the UK left the EU. So far as prospectuses are concerned, the changes to be made to the UK regime largely preserve the existing regime as it currently applies to issuers in the UK (including following the full implementation of the EU Prospectus Regulation mentioned below) but reflect the consequence of the UK no longer being a member of the EU. Thus, for example, the use of a ‘passported’ prospectus (approved by the regulator of a non-UK European Economic Area (“EEA”) issuer’s Member State) for offerings or admissions to trading on regulated markets in the UK will no longer be possible. Also, issuers will be required to use UK-adopted international accounting standards (or those of another country which have been ruled to be ‘equivalent’ by the UK) to present historical financial information in their prospectuses. In addition, the powers of the Commission and the European Securities and Markets Authority (“ESMA”) under EU prospectus law will be transferred to the UK’s Treasury (generally as regards ‘equivalence’ decisions) and to the Financial Conduct Authority (“FCA”) (generally as regards the issue of binding technical standards). Equivalence directions already issued by the UK Treasury, and which will take effect from the end of the transitional period, include a direction that prospectuses drawn up in accordance with an EEA Member State’s rules may be treated as equivalent to prospectuses drawn up under UK law and so approved by the FCA, and that EU-adopted IFRS will be considered to be equivalent to UK-adopted international accounting standards for the purposes of UK prospectus and transparency requirements. In the broader area of financial services, the UK and the EU are committed to using their best endeavours to finalise by June 2020 their respective ‘equivalence assessments’ for the purposes of allowing ‘third country’ access to certain cross-border financial services. One particular issue of concern that remains to be resolved concerns companies with dual listings in London and an EU Member State. EU investment firms will, under the Markets in Financial Instruments Regulation ((EU) 600/2014) (“MiFIR”) Art. 23 ‘trading obligation’, be forced to restrict their trading of the shares of such companies to approved markets in the EU and so will no longer be able to trade such shares in London (e.g. on the LSE’s Main Market or AIM) unless London trading venues are granted ‘equivalence’ status. In 2019, ESMA issued two public statements on this issue, the most recent of which (29 May 2019) confirmed that the shares of EEA issuers (i.e. whose shares have an EEA Member-prefixed International Securities Identification Number orISIN “ ”) will be subject to the MiFIR Art. 23 trading obligation (and so investment firms may only trade in those shares on EU markets) and that shares of UK issuers (i.e. whose shares have a GB-prefixed ISIN) will be treated as falling outside the trading obligation and so may be traded by EU investment firms in London. In contrast, under the version of MiFIR as ‘on-shored’ into the UK following Brexit, UK investment firms will be required to trade EEA shares on any London market on which they are traded, rather than on an EU market. The FCA continues to press for reciprocal equivalence as the best solution to this trading obligation conflict.

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Where London is the more important and liquid listing for an EEA issuer, this conflict may encourage companies to cancel their EU listings or may encourage EU investment firms to concentrate their trading operations in London. Prospectus Regulation ((EU) 2017/1129) The other significant development in 2019 affecting UK IPOs has been the full implementation of the new EU prospectus regime established by the new, directly applicable Prospectus Regulation with effect from 21 July 2019. Two of its provisions (exempting certain admissions to trading on a regulated market and certain offers) had taken effect in 2017 and 2018, respectively. The new Regulation has replaced the 2005 Prospectus Directive. The most significant changes brought about by the new Prospectus Regulation (which will be reflected in the ‘on-shoring’ of the prospectus regime following the end of the UK’s Brexit implementation period as mentioned above) and of particular relevance to IPOs (as opposed to secondary offerings) include: • More prescriptive rules on the disclosure of risk factors in prospectuses. • New rules on the way in which the prospectus summary must be set out (including length and a Q&A format). • The ability of certain small and medium-sized enterprises (“SMEs”) and other small issuers whose securities are not admitted to trading on a regulated market to issue an ‘EU Growth prospectus’ which will not have to contain as much information as a full prospectus. • The ability to be able to incorporate by reference in the prospectus a wider range of information. Following the full implementation of the Prospectus Regulation, the FCA has replaced much of the content of the Prospectus Rules in its Handbook (which also contains the FCA’s Listing Rules, Transparency Rules and disclosure requirements with respect to the Market Abuse Regulation ((EU) 596/2014) (“MAR”) (together, the “Listing, Transparency and Disclosure Rules” or “LTDRs”)) with appropriate extracts from the relevant, directly applicable EU regulations. These are: the Prospectus Regulation itself; the ‘PR Delegated Regulation’ ((EU) 2019/980) which, among other things, sets out in annexes the detailed prescribed content of prospectuses; and the ‘Prospectus RTS Regulation’ ((EU) 2019/979) which, among other things, sets out regulatory standards on the key financial information to be included in a prospectus summary. These FCA rules are now referred to as the Prospectus Regulation Rules (“PRRs”).

The IPO process: Steps, timing and parties and market practice Markets The first step for a company considering listing in London will be to determine which market is right for it. By far the most commonly used markets are those of the LSE, although a very small number of companies have in recent years listed on NEX Exchange or on Euronext London (in particular, companies who are conducting a dual IPO on one of Euronext’s other European exchanges). Given the prevalence of the LSE, however, the procedures and regulations described below assume a listing on one of the LSE’s markets. The LSE operates two principal markets: the Main Market; and AIM, which are relevant to IPOs. The Main Market is the LSE’s flagship market, and a ‘regulated market’ for the purposes of the EU Directive on Markets in Financial Instruments (No. 2014/65/EC) (“MiFID II”). Under the UK’s Listing Rules, all equity shares that are listed must be admitted to trading on regulated markets. This means that companies who are undertaking an IPO must follow a dual track process of applying for both admission to the FCA’s Official

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List of securities as well as admission to trading on the Main Market. Being admitted to the Official List as a listed security will be a critical consideration for those companies that want to be open to investment by institutional investors, since those investors will have investment policies restricting them to investing in listed securities, and in some cases to securities with a ‘premium’ listing (either for governance reasons or because shares in such companies will be eligible for inclusion in the FTSE UK indices). AIM is the preferred London market for smaller and/or growth companies whose securities are not ‘officially’ listed.1 It operates a less prescriptive regulatory and governance regime than the regime that applies to companies admitted to trading on the Main Market, which is considered to be more appropriate for the stage of development of these types of companies. It will also be more attractive for companies that will have a small free float as there is no formal minimum free float requirement on AIM, whereas companies seeking admission to the Main Market will ordinarily need at least a 25% free float. Under MiFID II it operates as a multilateral trading facility, rather than a regulated market, and currently qualifies as an EU SME Growth Market (which confers on companies traded on such markets certain relaxations under the EU’s prospectus and market abuse regimes). Listing segments A company seeking admission to the Official List will need to decide early in the process whether to seek admission to the ‘premium’ listing segment of the Official List or to the ‘standard’ listing segment. Both segments are available to UK and non-UK incorporated companies; however, a ‘premium’ listing will require the company to adhere to the UK’s highest standards of regulation and governance, both in terms of eligibility criteria and continuing obligations, as described below. A premium listing is, however, one criterion for inclusion in the FTSE UK indices, which is likely to be an important consideration for the company in deciding whether to seek a premium listing. For inclusion in the FTSE UK indices, the company would need to be allocated UK nationality by FTSE. The latter nationality test will be significantly easier to satisfy if the company is UK incorporated. Non-UK incorporated companies would need to have their greatest liquidity in the UK and be incorporated in a jurisdiction that FTSE classifies as either ‘developed’ (and not pass liquidity tests in their country of incorporation) or as an ‘approved internationally recognised low tax country’. In addition, non-UK incorporated FTSE companies will have to acknowledge publicly their adherence to the principles of the UK Corporate Governance Code, pre-emption rights and the UK Takeover Code as far as practicable and have at least a 50% free float. If the UK nationality requirement prevents FTSE inclusion, then a premium listing may have little additional value for the company over a standard listing. From 1 July 2018, a new category of premium listing has been made available to ‘sovereign controlled commercial companies’ (“SCCs”), meaning issuers in respect of whom a ‘State’2 exercises or controls 30% or more of voting rights. The new rules are designed to allow SCCs to benefit from a premium listing without having to comply fully with the ‘controlling shareholder’ and related party transaction requirements of the premium Listing Rules. Specifically, SCCs will not be required to have a ‘relationship agreement’ (discussed further below) with the controlling State, nor will it be required to obtain shareholder approval for a related party transaction (also discussed further below) between itself and the controlling State. In addition, as a special concession to SCCs, a premium listing will be available for depositary receipts (also known as ‘global depositary receipts’ or “GDRs”) issued by them as well as for their equity shares (but these would not currently be eligible for FTSE inclusion). However, the FCA has stepped back from including in the new SCC premium

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Listing Rules two other exemptions from the existing premium listing requirements that it originally proposed should be available to SCCs: (i) the announcement obligations that apply to issuers in respect of related party transactions; and (ii) independent voting on the election of independent directors. SCCs applying for admission to the new SCC premium listing category will have to comply with the above two premium listing requirements as well as all other premium listing requirements applicable to corporate issuers that have not been disapplied for SCC issuers. A standard listing may be an attractive option for certain overseas companies looking to access the London markets as it is possible to list GDRs on the standard listing segment, whereas the premium listing segment is, subject to the new exemption for SCCs mentioned above, reserved only for equity shares issued by trading companies or closed- or open-ended investment funds. Depositary receipts are tradable securities representing the underlying shares of the issuer. The benefit for companies incorporated in certain emerging market jurisdictions is that, whereas it may be challenging to market shares of a company in their jurisdiction to international investors, due to the additional cost and complexity that may be involved with owning such shares and the associated exchange rate risks, the same issues do not apply for depositary receipts. Under a GDR structure, the shares of the company will be held by a depositary bank, who will then issue GDRs representing those shares to investors and exercise its voting rights in accordance with instructions provided by the respective GDR holders. The Listing Rules contain a separate section for GDRs in Chapter 18, which modify some of the requirements that apply to a standard listing of equity shares; however, the main eligibility requirements and continuing obligations are substantively the same. Advisers and parties When deciding on which market to pursue its IPO, a company will need to engage with its legal and financial advisers at an early stage to determine whether it will satisfy the eligibility criteria of its chosen market. The advisory team will consist of at least the following: • Sponsor/Nominated Adviser/financial adviser: For companies seeking a premium listing on the Main Market, they will need to appoint an investment bank or other institution authorised by the FCA to act as the company’s sponsor (the “sponsor”) in accordance with the Listing Rules published by the FCA (acting in its capacity as the UK’s securities regulator (and formerly under the name of the UK Listing Authority or the “UKLA”, a term which the FCA is now phasing out). The sponsor’s role is to advise the company on the application of the Listing Rules and the PRRs, and to make a declaration to the FCA shortly before admission confirming that: (i) the sponsor has acted with due care and skill; and (ii) the sponsor’s reasonable belief with respect to a number of matters relating to the company’s suitability for listing. The company will also be required to appoint a sponsor after it has been admitted to trading in relation to certain transactions and other matters where the application of the Listing Rules needs to be taken into consideration. In February 2019, the FCA issued important new and updated guidance with respect to sponsors and their responsibilities under the Listing Rules. The Nominated Adviser (“Nomad”) is broadly the equivalent of a sponsor on AIM; however, the key difference is that a Nomad’s appointment is full time, acting as an interface between the LSE and the AIM company and providing regulatory advice to the company on an ongoing, rather than ad hoc, basis. Companies seeking a standard listing on the Main Market will not be required to appoint a sponsor or Nomad, but will ordinarily appoint a financial adviser to assist them with matters such as structuring, valuation, marketing and transaction management.

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• Underwriters: The company will appoint at least one bank, who may also be the sponsor, to lead the offering of shares to investors (known as the ‘global coordinator’). A wider syndicate of banks may then be appointed by the company and the global coordinator to implement the offering. • Reporting accountants: The accountants will assist with ensuring that the company has sufficient and up-to-date financial information to meet the requirements of the PRRs and Listing Rules, in the case of a Main Market IPO, or the AIM Rules for Companies, in the case of an AIM IPO. Other key work streams for the reporting accounts will be preparing a detailed due diligence report on the financial position of the company’s group (known as the ‘long form report’), confirming that there has been no significant change in the financial position of the company since the date of its most recently audited accounts, preparing reports on the adequacy of the company’s working capital and, in the case of a premium listing, the directors’ ability to make proper judgments on an ongoing basis as to the financial position and prospects of the company’s group, and their capitalisation and indebtedness. • Legal advisers: The company’s legal advisers will assist with the structuring of the group, detailed legal due diligence and the preparation of relevant disclosure, advising on the corporate governance for the group, advising on the implications of the Listing Rules, PRRs and other relevant laws and regulations to the IPO, and preparing the principal transaction documentation, including the prospectus. Preliminary steps Once the advisory team has been appointed, the company and its advisers will focus initially on structuring, preliminary documentation and due diligence. This phase will normally last between six and 12 weeks. Other factors for the company to consider at an early stage will be the composition of the board and, for companies seeking a premium listing, how it will be able to comply with the UK Corporate Governance Code (discussed further below). The company will also spend considerable time with the underwriters reviewing the equity story of the company, which will be a key factor in determining the success of the transaction. The initial documentation that the company and its advisers will need to progress includes guidelines on the publication of analysts’ research (if relevant) and information concerning the company and/or the IPO more generally. The research guidelines will be adopted by the company and all members of the underwriting syndicate, set out the key requirements for the contents of any research reports from connected and unconnected analysts, and establish restrictions on the dissemination of such reports in line with relevant regulatory provisions (both in the UK and the US). Similarly, the publicity guidelines will seek to address the regulatory risk resulting from: (i) the prohibition on communications, in the course of business, which invite or induce the engagement of investment activity (a ‘financial promotion’) by anyone other than a person authorised by the FCA, unless the financial promotion is either approved by such authorised person or is covered by an appropriate exemption; (ii) the requirements of PRR 3.3 in relation to announcements or documents that could be considered an ‘advertisement’ under those rules; and (iii) statements being made which differ from those made in the prospectus, which could potentially call into question the adequacy of disclosure made in the prospectus and increase potential for claims being made by disgruntled investors,

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling (London) LLP United Kingdom and will set out the process that must be followed before information can be released by or on behalf of the issuer (including the vetting of certain communications by the company’s legal and financial advisers). Work will also commence on the key transaction documents; namely the prospectus (or admission document for an AIM IPO) and the underwriting agreement. The prospectus will contain comprehensive information on the issuer, its business and its management and the risks of investing, each as required by the PRRs. PRR 1.1.5G sets out various other documents (including EU regulations and certain ESMA documents) that the FCA considers relevant to the UK prospectus regime. The prospectus is the primary marketing document for the IPO, and will form the basis for an investor’s decision whether to participate in the offering or not. It will therefore also need to contain details of the offer and its timetable. The FCA will review advanced drafts of the prospectus prior to granting its approval. It will provide comments to the advisory team during this vetting process to ensure that the document meets the requirements of the PRRs and the Listing Rules. Further detail on the key disclosure requirements of the prospectus is included below. Underwriting The underwriting agreement will, as on any IPO, set out the agreement between the issuer, the directors (in the case of a premium listing, but not ordinarily on a standard listing), the selling shareholder(s) (if any) and the underwriters as to the terms on which the offering of shares in the IPO will be conducted, the mechanics for placing and settling shares with investors and the process for admission. It will contain, among other things, extensive termination rights for the underwriters (e.g. if there is a material adverse change in circumstances or a force majeure) and representations and warranties from the company and its directors which are designed to support the due diligence exercise by eliciting information that may need to be disclosed in the prospectus. The underwriting agreement may also include lock-ups on the company, its directors and any selling shareholders, although separate lock-up agreements may be entered into, including with any other significant shareholders. On an AIM IPO, lock-ups are required under Rule 7 of the AIM Rules for Companies, for a 12-month period from admission, from any 10% shareholder or any director, and their respective associates, if an applicant for listing has not been independent and earning revenues for at least two years. Ordinarily, a UK IPO will be underwritten on a ‘reasonable endeavours’ basis, whereby the banks agree to use reasonable endeavours to procure placees for the shares being offered. If, however, the banks are unable to procure placees, they will have no obligation to take up the shares themselves. As most UK IPOs are also conducted on a book-built basis, where investor appetite for the offering is gauged before pricing is confirmed, the banks will ‘build the book’ prior to signing the underwriting agreement, giving the banks and company clarity on how many shares will be taken up. As mentioned above, the legal advisers and reporting accountants will conduct a thorough due diligence review of the legal and financial affairs of the company and its group. This should identify early in the process if there are any issues which could potentially prevent the IPO from proceeding. It will also assist the sponsor in confirming the company’s suitability for listing, and the legal advisers in identifying what disclosures need to be made, and what risk factors need to be identified, in the prospectus or admission document. In making such assessment, the legal advisers will consider whether a potential investor would expect to be provided with such information and whether their investment decision could be influenced by such information.

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Due diligence The due diligence review will also help to determine whether any pre-IPO restructuring will be necessary; for example, the transferring of assets between group companies to ensure that the listed group holds all necessary assets to carry on its business, as identified in the prospectus. In the case of certain companies operating in specialised industries, additional specialist reports may be required. For example, real estate companies may need to obtain updated property valuation reports, and mining or oil and gas companies will need to obtain reports from technical experts on their assets (as discussed further below). Once initial structuring, due diligence and documentation matters have been completed, the company will begin investor education and the marketing of the IPO. Analyst research These processes have been impacted by two significant amendments to the FCA’s Conduct of Business Sourcebook that took effect on 1 July 2018 and were aimed at encouraging more independent analyst research and requiring earlier publication of a largely complete prospectus. Prior to these changes, the key information opportunities for potential investors in UK IPOs had been the publication of: • analyst research on the issuer – this had virtually always been produced by ‘connected analysts’ (i.e. analysts from the banking syndicate engaged to market the IPO); • the issuer’s detailed ‘Intention to Float’ announcement, which then starts a ‘blackout’ period of (typically) two weeks during which no further information (including a draft prospectus) about the IPO is published; and • a pathfinder prospectus (i.e. an advanced draft of the prospectus which does not contain details of the offer price or size and has not been approved by the FCA) or price-range prospectus (i.e. a finalised prospectus that has been approved by the FCA and includes a specified range within which the shares are expected to be priced) following expiry of the ‘blackout’ period. This long-established process had led to concerns that: (i) there is a marked lack of independent analyst research, when compared to ‘connected analyst’ research, during the initial investor education phase; and (ii) there is information asymmetry that favours the issuer and sell-side firms, at the expense of investors who do not get access to detailed information about the issuer and the IPO proposition as early in the IPO process. Therefore, from 1 July 2018, it has been a requirement that: • unconnected analysts are granted virtually equal access to the issuer’s management, either alongside connected analysts or under a separate track. It was hoped that this would facilitate the publication of more unconnected research and allow it to be published at the same time as connected research; and • connected research cannot be released until at least seven days following the publication of either the approved prospectus or an approved ‘registration document’ component of the prospectus (i.e. setting out the disclosure information on the company but not the details of the offering),3 unless unconnected analysts have been offered access to the issuer’s management alongside connected analysts, in which case connected research may be released from one day after publication of the prospectus or registration document. Since these new requirements have taken effect, market practice has tended to follow using a separate track for unconnected analysts, therefore building into the timetable the additional seven-day gap between publication of the prospectus/registration document and connected research. It has also led to more companies issuing an initial registration document instead

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling (London) LLP United Kingdom of a prospectus, given that the prospectus (including offering details) would be required at a relatively early stage. The FCA noted in their commentary to the consultation that they issued in advance of these rule changes that they expected that the next document to be published by an issuer following their registration document would either be an FCA-approved price-range prospectus or an FCA-approved securities note and summary, as opposed to an unapproved pathfinder document. However, it is still possible under the new rules to use a pathfinder for the roadshow of an offering to institutional investors only. Relationship agreements While investor education is progressing, all further IPO documentation will need to be completed. For a company seeking a premium listing on the Main Market (other than an SCC, as discussed above), this will include a relationship agreement with any ‘controlling shareholders’, meaning any person who exercises or controls, on their own or together with any person with whom they are acting in concert, 30% or more of the votes able to be cast on all or substantially all matters at general meetings of the company. The relationship agreement will govern dealings between the company and its controlling shareholder(s) and is aimed to ensure that the company is able to operate its business independently and that all transactions with the controlling shareholder are on arm’s-length terms. The agreement will, at a minimum, need to contain undertakings that: (i) transactions and arrangements with the controlling shareholder (or any of its associates) will be conducted at arm’s length and on normal commercial terms; (ii) neither the controlling shareholder nor any of its associates will take any action that would have the effect of preventing the company from complying with its obligations under the Listing Rules; and (iii) neither the controlling shareholder nor any of its associates will propose or procure the proposal of a shareholder resolution which is intended or appears to be intended to circumvent the proper application of the Listing Rules. It is also accepted market practice, but not a requirement, that a relationship agreement will be put in place by an AIM company with a 30% (or larger) shareholder. Other documentation Connected to the requirement to have a relationship agreement, the Listing Rules also require that the articles of association of a company seeking a premium listing on the Main Market must permit a two-step election/re-election process for independent directors whereby such appointments need to be approved by both the shareholders of the company and independent shareholders excluding the controlling shareholder(s), or, if approval from both groups is not obtained, by the shareholders of the company in a second resolution passed between 90 and 120 days from the date of the original vote. Other important documentation that will need to be prepared includes the sponsor agreement (for a premium Main Market listing) or nominated adviser agreement (for an AIM admission), setting out the terms of the sponsor or Nomad’s engagement with the company and placing certain obligations on the company which aim to ensure that the sponsor or Nomad are able to comply with their regulatory obligations. The suite of comfort letters mentioned below will also be a focus for the sponsor or Nomad, as will director and officer questionnaires used to confirm certain key information on the company’s management, the presentation to be used on the marketing roadshow and the company’s intention to float announcement. Application process At the final stage of the IPO process, the company will follow the formal admission requirements set out in the LSE’s Admission and Disclosure Standards (“ADSs”) and either Chapter 3 of the Listing Rules, in the case of a Main Market IPO, or Rules 2 to 6 of the AIM Rules for Companies, in the case of an AIM IPO.

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The ADSs require that an issuer contacts the LSE no later than 10 business days before the application for admission is to be considered, using a prescribed form titled ‘Form 1’ and accompanied by a draft copy of the prospectus. The application will, however, be considered provisional at this stage and will only be deemed to be a formal application once the prospectus has been approved by the FCA. The formal application and the final prospectus must be submitted to the LSE by no later than midday at least two business days prior to the consideration of the application for admission. Written confirmation of the number of securities to be allotted must also be provided by no later than 16:00 on the day before admission is expected to become effective, unless the LSE has agreed in advance to extend this to no later than 07:00 on the day of admission. The requirements of Chapter 3 of the Listing Rules include submitting certain documents by midday two days before the FCA is to consider the application for admission (the ‘48 hour documents’). These include a prescribed form of application for admission and a copy of the prospectus that has been approved by the FCA (or another relevant authority in the company’s ‘home member state’ (ordinarily the Member State of the EEA in which the company has its registered office), in which case a certificate of approval from such authority and a translation of the summary of the prospectus will be required) and written confirmation of the number of shares to be allotted. In addition, a prescribed Shareholder Statement, confirming the number of shares to be admitted and the number of those shares which are in public hands, and a prescribed Pricing Statement, confirming the pricing of the new shares being issued, will need to be signed by the sponsor and submitted to the FCA on the day of admission. For a Main Market IPO, in accordance with Listing Rule 8.4.3R the company’s sponsor will also need to make a declaration to the FCA in the prescribed form (the “Sponsor Declaration”), either on the day the FCA is to consider the application for approving the company’s prospectus (prior to its approval), or at another time agreed with the FCA in certain circumstances. The Sponsor Declaration will (as mentioned above), among other things, confirm that: (i) the sponsor has taken reasonable steps to satisfy itself that the directors of the company understand their responsibilities and obligations under the LTDRs; (ii) the company has satisfied all requirements of the Listing Rules relevant to an application for listing; (iii) the applicant has satisfied all applicable requirements set out in the PRRs; (iv) the directors have established procedures which will enable the company to comply with the LTDRs on an ongoing basis; (v) the directors have established procedures which will provide a reasonable basis for them to make proper judgments on an ongoing basis as to the financial position and prospects of the company and its group; and (vi) the directors of the company have a reasonable basis on which to make the required working capital statement. In order to support this declaration, the sponsor will require the reporting accountants and the legal advisers to provide it with various comfort letters (which will also be addressed to the company) on the matters covered by the Sponsor Declaration. Rules 2 to 6 of the AIM Rules for Companies require that the company provides the LSE with certain information at least 10 business days before the expected date of admission. This covers similar information to that required by Form 1 for a Main Market IPO but also includes additional information such as a brief description of the business, the names and functions of directors and proposed directors and details, insofar as they are known, of any significant shareholders (i.e. holding 3% or more of any class of shares in the company). At least three business days prior to admission, the company must submit a completed application for admission, in the LSE’s prescribed form, and an electronic copy of its admission document. These final documents must be accompanied by a declaration from the company’s Nomad (“Nomad Declaration”), similar to a Sponsor Declaration, confirming matters such as the

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling (London) LLP United Kingdom company’s appropriateness for admission on AIM and that the AIM Rules for Companies and the AIM Rules for Nominated Advisers have been complied with, in particular that the admission document complies with the content requirements set out in Schedule Two of the AIM Rules for Companies. As with the Sponsor Declaration, the Nomad will obtain comfort letters from the reporting accountants and the legal advisers to support its declaration. In the case of either a Main Market IPO or an AIM IPO, admission to trading will only become effective once the LSE has announced this on a regulatory information service.

Regulatory architecture: Overview of the regulators and key regulations Admission to listing and admission to trading As noted above, the regulatory requirements for a London IPO will depend on the market that is chosen. For Official List (i.e. Main Market) IPOs, the legislative and regulatory framework is principally contained in the Financial Services and Markets Act 2000 (“FSMA”), the LTDRs, the PRRs and the ADSs. The Listing Rules set out the eligibility criteria for applicants and the continuing obligations that they will need to comply with on an ongoing basis, once listed. The key differences in the eligibility criteria for a premium listing and a standard listing are that: • the date of the latest audited financials for a premium listing is not more than six months before the prospectus (or nine months before admission), whereas for a standard listing it is 18 months before the prospectus if audited interims are included, or 15 months if unaudited interims are included; • a premium listing ordinarily requires a three-year revenue-earning track record to be demonstrated, with the financial information for such period representing at least 75% of the applicant’s business; • an applicant for a premium listing must be able to demonstrate that it will be carrying on an independent business as its main activity; • the constitutional documents of a non-UK applicant for a premium listing must provide shareholders with pre-emption rights if the laws of its country of incorporation do not provide such rights; • an applicant for premium listing (other than an SCC as mentioned above) must have a relationship agreement in place with any controlling shareholders; and • an applicant for a premium listing must appoint a sponsor for the listing. The FCA regulates the admission of securities to the Official List. In doing so, it is also responsible for making, reviewing and amending the Listing Rules, enforcing compliance with the Listing Rules (and other LTDRs), dealing with listing applications and generally reviewing and enforcing LTDRs matters. It is also the ‘competent authority’ in the UK for reviewing and approving prospectuses. The LSE regulates the admission of securities to trading on the Main Market, and in doing so it is responsible for publishing the ADSs. These set out the LSE’s rules and requirements in relation to a company’s admission to trading and ongoing disclosure obligations on the LSE’s regulated markets (and so not AIM). In the case of an AIM IPO, the Listing Rules and the ADSs will not be applicable. Instead, applicants will be required to comply with the AIM Rules for Companies published by the LSE and their Nomads with the LSE’s AIM Rules for Nominated Advisers. The PRRs will generally not be relevant to an AIM IPO, since it will usually be structured so as to avoid being an ‘offer to the public’ under FSMA (i.e. it will be an offer which, under the Prospectus Regulation, is exempt from the obligation for a prospectus to be published because it is only made to ‘qualified investors’ (e.g. institutional investors)).4 The eligibility criteria for an

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AIM admission are similar to those for a standard listing on the Main Market; however, as mentioned above, there is no formal minimum free float for an AIM admission. Prospectus disclosure The disclosure obligations for a company seeking to list in London are set out in the PRRs, in the case of a company seeking admission to the Main Market and in which case the key disclosure document is a prospectus, or the AIM Rules for Companies, in the case of a company seeking admission to AIM (assuming, as mentioned above, that they do not conduct an ‘offer to the public’) and in which case the key disclosure document is an ‘admission document’. The Prospectus Regulation requires a prospectus to be written in an easily analysable, concise and comprehensible form and to contain the necessary information which is material to an investor for making an informed assessment of the financial position, etc. of the issuer, the rights attaching to the securities being offered and the reasons for the issue and impact on the issuer. It may be published in a single document (which is the typical UK practice) or in three separate documents comprising a registration document (containing information relating to the issuer), a securities note (containing information concerning the securities being offered) and a prospectus summary. Key information that the PRRs require to be included in a prospectus includes: • risk factors informing potential investors of the material risks to the issuer, its industry and the securities being offered. These should be specific to the issuer or shares being offered, be grouped into a limited number of categories with the most material factor listed first and, where possible, there should be a quantitative assessment of each risk; • the last three years’ audited financial information prepared in accordance with IFRS or, in the case of a non-EEA issuer, in accordance with national accounting standards where these standards are considered equivalent to IFRS, such as US GAAP. This minimum three-year period can be relaxed by the FCA for certain mineral or scientific research-based companies seeking a premium listing and which have been operating for a shorter period of time, subject to certain conditions, and does not apply to companies seeking a standard listing; • details of any significant changes in the financial or trading position of the company since the date of the latest published audited or interim financial information included in the prospectus; • a working capital statement covering the 12-month period from the date of the prospectus, although in practice the company and its sponsor will normally ask the reporting accountants to cover a period of 18 to 24 months in its working capital exercise as a precaution; • an operating and financial review (“OFR”) describing the company’s financial condition, changes in financial condition and results of operations for the periods covered by the historical financial information included in the prospectus. This is similar to, but not quite as broad as, the management discussion and analysis required in a US IPO; • summaries of material contracts entered into outside of the ordinary course of business by the company’s group in the past two years (or longer if material obligations or entitlements remain outstanding); • details of any significant shareholders of the issuer, whose interest is notifiable under the issuer’s national laws; • details of any related party transactions that the company has entered into during the period covered by the historical financial information and up to the date of the prospectus;

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• details of any legal proceedings that the company has been party to in the last year; • prescribed information on the company’s directors and senior management, including remuneration, benefits and interests in the shares of the company (including share options) and also with respect to the company’s corporate governance; and • responsibility statements from the company, the directors and any proposed directors, confirming that they accept responsibility for the information contained inthe prospectus and that, to the best of their knowledge (having taken all reasonable care to ensure that such is the case), such information is in accordance with the facts and contains no omission likely to affect its import. A supplementary prospectus will need to be published if any significant new factor, material mistake or inaccuracy relating to the information included in the original prospectus arises during the period after publication of the original prospectus but before the later of the securities being admitted to trading and the closing of the offer to the public. Significantly, the issuance of a supplementary prospectus triggers withdrawal rights for any investor who had previously agreed to purchase shares in the offering. Such rights are exercisable before the end of the second working day after the day on which the supplementary prospectus was published. Mineral and other specialist companies Additional disclosure obligations apply to mineral companies5 and scientific research-based companies, and also property companies and shipping companies,6 as ‘Specialist Issuers’ under ESMA’s update of the Committee of European Securities Regulators (“CESR”) recommendations on the consistent implementation of Commission Regulation (EC) No. 809/2004 implementing the Prospectus Directive (ESMA/2013/319) (the “ESMA Recommendations”).7 The aim of the ESMA Recommendations is to provide advice on the interpretation of the Prospectus Directive and to ensure there is a common set of standards for the preparation of prospectuses across the EU. The ESMA Recommendations are applied by ESMA members on a voluntary basis. To the extent that the ESMA Recommendations remain compatible with the new prospectus regime established by the Prospectus Regulation, they remain relevant to IPOs and in PRR 1.1.5G, the FCA states that, together with certain other ESMA documents referred to below, they are relevant to the prospectus regime in the UK. Thus, for example, a mineral company will ordinarily be required to include a ‘competent person’s report’ (“CPR”), dated not more than six months from the date of the prospectus and prepared by a qualified person, reporting on the mineral projects of the company. This will need to include, at a minimum, the information set out in Appendix II (for mining companies) or Appendix III (for oil and gas companies) of the ESMA Recommendations, such as a legal and geological overview of the company, data on its resources and/or reserves, a valuation of reserves (if applicable), an assessment of environmental liabilities, a selection of historic production statistics and operating expenditure, a discussion of the projects’ infrastructure, maps of the projects and any other relevant special factors. In addition, the CPR must be drawn up in accordance with one or more of the reporting standards set out in Appendix I of the ESMA Recommendations. The Listing Rules also contain a small number of variations for mineral companies and scientific research-based companies from the normal eligibility requirements of a premium listing. As already mentioned, such companies will not be required to produce three years of historical financial information if they have been operating for a shorter period,8 in which case the three-year track record requirement referred to above will be reduced to the period for which the company has published financial information. A mineral company which

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Shearman & Sterling (London) LLP United Kingdom does not hold controlling interests in a majority (by value) of the assets will also be required to demonstrate that it has a reasonable spread of direct interests in mineral resources and has rights to participate actively in their extraction, whether by voting or by other rights which give it influence in its decisions over the timing and method of extraction of the resources. Although there are no formal requirements on the due diligence to be carried out on a mineral company under the Listing Rules, it is common practice on the London IPO of a mineral company that a legal opinion will be obtained from a law firm qualified in the jurisdiction in which the company’s mineral assets are located, confirming the title to such assets and other matters relating to the legal regime governing mineral rights in that jurisdiction. This additional step is taken as the value of a mineral company will be based almost entirely on the validity of its right to explore and exploit minerals and such value could be wiped out if such rights are lost. ESMA guidance Other ESMA documents that are relevant to understanding the requirements of the prospectus regime include ESMA’s Prospectus Directive Q&A (to the extent it remains applicable to the new regime), ESMA’s Q&A on the Prospectus Regulation, ESMA’s Guidelines on Risk Factors under the Prospectus Regulation and, when finalised, ESMA’s Guidelines on disclosure requirements under the Prospectus Regulation. ESMA’s previously issued guidelines with respect to alternative performance measures may also be relevant. AIM admission document For companies seeking admission to AIM, the content requirements for their admission document are set out in Schedule Two of the AIM Rules for Companies, which are based on the content requirements for a prospectus but with certain variations. For example, an OFR will not be required, but a prescribed disclaimer on the nature of AIM being a market for emerging or smaller companies will. Schedule Two also contains a general disclosure requirement that the company includes any other information which it reasonably considers necessary to enable investors to form a full understanding of the assets and liabilities, financial position, profits and losses, and prospects of the applicant and its securities for which admission is being sought, the rights attaching to those securities and any other matter contained in the admission document.

Public company responsibilities Ongoing listing obligations A company considering an IPO will need to be mindful of the continuing obligations that will apply to it as a publicly listed company. For a company with a premium listing on the Main Market, this will include either complying with the UK Corporate Governance Code (which is expected by the investor community) or, alternatively, explaining in its annual report why it does not comply. The UK Corporate Governance Code covers matters such as the composition and responsibilities of the board and its committees and executive remuneration. The UK Corporate Governance Code does not apply to companies with a standard listing or companies admitted to trading on AIM; however, they are still required to make disclosures about the corporate governance regime they follow. These companies may choose to follow a specified corporate governance code voluntarily, as investors will often expect them to do so. For example, AIM companies often follow the Corporate Governance Guidelines for Small and Mid-size Quoted Companies published by the Quoted Companies Alliance.

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Companies with premium listings in London will also need to obtain shareholder approval for (as well as making prescribed announcements in respect of) certain transactions. This includes reverse takeovers and, for companies with a premium listing, this will also apply to certain related party transactions as well as significant transactions that are classified as ‘Class 1’ transactions. Broadly, these are significant transactions that, when applying a gross asset, profit, consideration or gross capital test, have a transactional value (in relation to the company) of 25% or more.9 Companies admitted to trading on the Main Market will also need to issue a prospectus if they conduct a public offering or if they issue shares in any 12-month period representing 20% or more of its share capital at the start of such period. The requirement to issue a prospectus will only apply to companies admitted to trading on AIM if they make a public offering. Since June 2019, the announcement and approval of ‘related party transactions’ which were previously only a concern for premium listed companies (leaving aside any MAR disclosure issues mentioned below) have also become relevant to standard listed companies. Following the Shareholder Rights Directive II ((EU) 2017/828), the FCA has amended its LTDRs to require that UK companies (as well as non-EU incorporated companies) with voting shares (or, in the case of SCCs, with a premium listing of GDRs) admitted to trading on a regulated market, announce details of certain material related party transactions. In addition, UK companies (and certain other companies) must obtain board approval (rather than shareholder approval which, with the exception of SCCs, is required for premium listed companies) to the transaction before it is entered into. Any director who is the related party (or an associate or director of the related party) cannot take part in the board’s consideration of the transaction or vote on it. As a general rule, compliance by a premium listed company with its premium listing, shareholder-approved, related party transaction requirements will satisfy these new requirements but, since there are differences between the two sets of related party transaction requirements, aspects of the new requirements could still be relevant and apply to a premium listed company. MAR obligations However, the most significant change for a listed company (or an AIM-traded company) is likely to be its increased disclosure obligations and the control of ‘inside information’. These obligations are primarily governed by MAR. Among other things, MAR: • prohibits dealings in securities while in possession of inside information concerning those securities; • requires disclosure ‘as soon as possible’ by an issuer of inside information which directly concerns that issuer, subject to certain limited exceptions under which disclosure may be delayed, in which case records must be kept which include how the MAR conditions for delaying public disclosure of inside information are being satisfied and who was responsible for deciding to delay disclosure; • prohibits the selective disclosure of inside information (e.g. the disclosure of inside information to certain potential investors or counterparties to transactions), except in very limited circumstances. These limited exceptions include disclosures to persons made ‘in the normal exercise of an employment, profession or duties’ and a ‘safe harbour’ in respect of ‘market sounding’ activities subject to following detailed record- keeping and other requirements with respect to the ‘safe harbour’; • requires records, known as ‘insider lists’, to be kept of persons to whom inside information has been provided; and • contains detailed disclosure obligations in relation to any dealings in securities of the company by persons discharging managerial responsibilities and their closely associated persons, and restricts such persons from dealing during a ‘closed period’ of 30 days prior to annual and interim financial reports/results announcements.

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AIM-traded companies are subject to an additional ‘price-sensitive information’ disclosure obligation that overlaps with their MAR disclosure obligation. Other ongoing obligations Listed (or AIM-traded) companies will also need to produce additional financial information as they are required to publish half yearly accounts, as opposed to annual accounts only. Furthermore, any non-UK company who is intending to incorporate a UK company as its IPO vehicle should be mindful that all UK incorporated companies, other than certain small companies who are exempt, are required to include a standalone strategic report in their annual report which sets out a fair review of the company’s business and a description of the principal risks and uncertainties facing the company, illustrated with the use of KPI analysis if necessary. UK companies who are admitted to the Official List must also produce an annual directors’ remuneration report, containing detailed disclosure of each directors’ remuneration and benefits, which will be subject to a non-binding advisory vote by shareholders, and this must include a forward-looking policy on directors’ remuneration which, at least once every three years (and sooner if any change is proposed to be made to it), will be subject to a binding vote by shareholders.

Potential risks, liabilities and pitfalls The decision to conduct an IPO is a significant step for any company, and requires careful planning and diligent execution in order to minimise the potential risks and liabilities that could arise from the IPO process and subsequently from the company’s new status as a listed company. Firstly, the company and all of its directors, including those being appointed as part of the IPO and identified in the prospectus or admission document, are responsible for the contents of the prospectus or admission document and could therefore have liability if it fails to meet the applicable contents standards. The general obligation is that the document contains information necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the company and the rights attaching to the shares being listed. If this standard is not met, the company and its directors may be liable to compensate investors who relied on the prospectus or admission document and suffered loss as a result. Those persons responsible could also face criminal sanctions if the document is false or misleading as a result of their dishonesty or recklessness. In order to protect against any such civil or criminal liability, a thorough legal and financial due diligence exercise will be conducted, as referred to above. In addition, in the UK it is usual practice to carry out a verification process on the prospectus or admission document. This involves checking that each statement contained therein is corroborated by reference to underlying independent documentation. The exercise is typically managed by the company’s legal advisers, who will liaise with the company’s directors and other nominated officers. It has become increasingly common for this exercise to be limited to key/material disclosures, as the historic ‘line-by-line’ verification process is considered to involve disproportionate time and cost. The results of the verification process will be documented in formal notes that are signed by the directors of the company. This differs from US practice where no such formal verification process is recorded. Once listed, the company must comply with its obligations under the Listing Rules (and other LTDRs) or the AIM Rules (including MAR), as applicable. The Listing Rules (and the AIM Rules) require companies to have in place adequate (or sufficient) procedures, systems and controls to enable them to comply with their obligations under those Rules.

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A failure to comply with those obligations can result in the FCA or the LSE, respectively, invoking their powers to publically censure and/or fine the company or to suspend, or in exceptional cases cancel, the listing or trading of its securities. Furthermore, for companies on the Main Market, the FCA has power to publicly censure and/or fine a director of the company who was knowingly concerned in the breach. In addition, the listed company will need to ensure it meets its ongoing obligations under MAR, as a breach of MAR by an individual or legal person is a civil offence punishable by a fine and administrative sanction. Furthermore, certain conduct that amounts to a breach of MAR is potentially also a criminal offence under the UK Criminal Justice Act 1993 which prohibits individuals from dealing in price-affected securities when in possession of inside information, encouraging another to deal in price-affected securities and disclosing inside information otherwise than in the proper performance of their employment, office or profession. Accordingly, it is imperative that a company pursuing a listing obtains appropriate advice to mitigate these risks both during and following the listing process, and adopts suitable internal procedures and governance checklists to ensure that the benefits of conducting its IPO are not tarnished by avoidable pitfalls once it is listed.

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Endnotes 1. The LSE also launched the High Growth Segment in 2013, which is a segment of the Main Market for EEA incorporated, mid-sized high growth companies that require access to capital and a public platform to continue their growth but whose shares will not be officially listed. However, only one or two companies have joined it since then. 2. ‘State’ is defined as being: (i) the sovereign or other head of a State in their public capacity; (ii) the government of a State; (iii) a department of a State; or (iv) an agency or special purpose vehicle of a State, including an agency or SPV of (i), (ii) or (iii). A sovereign-controlling shareholder must be a ‘State’ that is recognised by the UK Government and may even be the UK itself (if it were to be a controlling shareholder – as technically it currently is, for example, in the bank RBS – in a company that wished to apply for an SCC premium listing). 3. If an issuer chooses to publish a registration document rather than a full prospectus, it will need to publish either: (i) an approved ‘securities note’ and prospectus summary; or (ii) an approved full prospectus, later in the process. 4. Broadly speaking, a prospectus will be required in the UK (subject to certain limited exceptions) if a company is: (i) seeking admission of its securities to trading on a regulated market in the UK; or (ii) making an offer ‘to the public’ (defined broadly) in the UK. 5. Under the Listing Rules, a mineral company is a company or group whose principal activity is, or is planned to be, the extraction of mineral resources (which may or may not include exploration for mineral resources). Mineral resources include metallic and non-metallic ores, mineral concentrates, industrial minerals, construction aggregates, mineral oils, natural gases, hydrocarbons and solid fuels including coal. 6. Under the Listing Rules, a scientific research-based company is a company primarily involved in the laboratory research and development of chemical or biological products or processes or any other similar innovative science-based company.

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7. The ESMA recommendations also cover ‘start-ups’, meaning any companies whose businesses have been in operation for less than three years. 8. Additional requirements apply, however, to a scientific research-based company in such circumstances concerning the funding, research history and reasons for the listing of such company. 9. A premium listed issuer is allowed to: (i) disregard an anomalous profit test result of 25% or more when all other applicable class test results are below 5%, and the transaction is not a related party transaction; and (ii) in certain circumstances make specified adjustments to the figures used in calculating the profit test, if the transaction’s classification would otherwise be anomalous or above 25%.

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Pawel J. Szaja Tel: +44 20 7655 5013 / Email: [email protected] Pawel Szaja is a partner in the Capital Markets Group of the London office, having gained his experience working in the New York, Frankfurt and London offices of premier firms. A triple qualified (New York, England, Ireland) lawyer, he advises issuers and underwriters on equity and debt capital markets and liability management transactions as well as securities law and corporate governance matters. He has extensive experience advising on a wide range of cross-border securities offerings, including IPOs, privatisations, follow-on offerings, rights issues and other equity and debt capital markets transactions by issuers from Europe, Africa and the Middle East.

Michael Scargill Tel: +44 20 7655 5161 / Email: [email protected] Michael Scargill is counsel and head of UK Knowledge Management in the London M&A Group of Shearman & Sterling. Before that, he was a partner at a Magic Circle firm in London. With over 30 years of corporate law experience, advising both UK and global clients, Michael has extensive experience of a wide range of both public and private M&A, privatisation, joint venture, corporate governance and capital markets transactions, as well as large-scale outsourcing and restructuring matters.

Shearman & Sterling (London) LLP 9 Appold Street, London, EC2A 2AP, United Kingdom Tel: +44 20 7655 5000 / URL: www.shearman.com

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Other titles in the Global Legal Insights series include:

• AI, Machine Learning & Big Data • Banking Regulation • Blockchain & Cryptocurrency Regulation • Bribery & Corruption • Cartels • Corporate Tax • Employment & Labour Law • Energy • Fintech • Fund Finance • International Arbitration • Litigation & Dispute Resolution • Merger Control • Mergers & Acquisitions • Pricing & Reimbursement

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