The Float Guide How to float a company on the Finland Securities Exchange

Transcription

1 The Float Guide How to float a company on the Finland Securities Exchange Contact: Tom Fagernäs Finland tom.fagernas@krogerus.com

2 INTRODUCTION his guide gives an overview of what T is involved in listing a company on the NASDAQ OMX Helsinki exchange (the Helsinki Exchange ). It is a practical manual covering all aspects of a float from prerequisites through to life after the float. 2

3 Contents 1 EXECUTIVE SUMMARY INTRODUCTION TO THE FINNISH LISTING REGIME PREREQUISITES WHAT WILL BE REQUIRED GETTING THE COMPANY READY OVERVIEW OF KEY DOCUMENTS PRICING OF THE OFFERING LIFE AFTER LISTING CONCLUSIONS IPO TIMELINE

4 1 EXECUTIVE SUMMARY General The purpose of this guide is to give an overview of the listing process of a company domiciled in Finland on the NASDAQ OMX Helsinki exchange (the Helsinki Exchange). The guide describes the process from a practical point of view, covering the following aspects: the prerequisites for listing; the use of advisors; actions required to prepare the company for listing; documents and resolutions required; the prospectus and its contents; marketing and pricing of the securities; and the company s life after listing. A company planning to be listed on the Helsinki Exchange must comply with the listing requirements of the Helsinki Exchange. These prerequisites cover both corporate and financial aspects related to the company. Float team The team that will be assisting the company in connection with the listing process will typically consist of an underwriter (ie, an investment bank, who may also act as financial advisor), lawyers, auditors, PR-consultants and other experts whose assistance may be required for the listing process. Corporate matters The shareholders meeting of the company must resolve on the conversion of the company into a public company, as only public companies may be listed on the Helsinki Exchange. Changes must usually also be made to the company s Articles of Association by way of shareholders resolutions for the purposes of the conversion and also for the registration of the company s shares in dematerialised form in the Finnish book-entry securities system. In order to convert the company into a public company, it must also fulfill certain requirements set out for public companies in the Finnish Companies Act. Where the company issues new shares in connection with the listing, a shareholders resolution is required also for the issuance of these shares. It should be noted that, whether or not new shares are issued, also existing shareholders in the company may sell their shares (in whole or in part) in connection with the listing. Listing prospectus A prospectus, approved by the relevant authorities, must be published prior to listing and it must be available to investors throughout the entire public marketing and offering period. The prospectus must include, for example, a full description of the issuer s business, including financial information and risk factors associated with the company and its business. Pricing The pricing of the securities is crucial for the success of the listing, and the underwriter/financial adviser will generally assist the company in setting the appropriate price. Primarily, two different methods are used for the pricing of securities: book-building, where the price is determined on the 4

5 basis of pre-marketing to potential investors and fixed pricing on the basis of valuation and market analysis. Listing costs As regards listing costs, the total costs associated with the listing process in Finland depend largely on the specific transaction. These costs comprise fees and expenses such as legal fees, underwriting fees, auditor s fees, marketing costs and PR-related expenses. In total, these costs are likely to fall within a range of five to ten per cent of the listing proceeds, although in relatively small listings these costs may be greater in relation to the proceeds. In addition, listed companies incur expenses also indirectly in terms of management time, governance and reporting. Life after listing After listing, the company must comply with the rules imposed on listed companies, such as the obligation to disclose financial information periodically, to communicate to the market such matters that may have a material effect on the securities issued by the company and to maintain insider registers. Listed companies may also be more interesting towards the media, which gives rise to public relations considerations during the life after listing. 5

6 2 INTRODUCTION TO THE FINNISH LISTING REGIME 2.1 General In Finland, the only regulated market for listed shares (ie, an exchange having the status of a regulated market under the relevant EU Directives) is currently the Helsinki Exchange which forms part of NASDAQ OMX Nordic group. NASDAQ OMX Nordic in turn comprises seven exchanges in Helsinki, Copenhagen, Stockholm, Iceland, Tallinn, Riga and Vilnius and encompasses more than 80 per cent of the exchange trading in the Nordic and Baltic countries. The Helsinki Exchange is supervised by the Finnish Financial Supervisory Authority (the FIN-FSA). Companies fulfilling the listing requirements are listed on the main Nordic List, in addition to which NASDAD OMX also operates a so-called First North market for small growth companies that are not ready for listing on the main market but which nevertheless wish to enjoy some benefits of the capital market. The regulatory requirements on the Nordic List, however, are higher than on the First North, since the Nordic List is a regulated market under the relevant EU directives, and its listing requirements are based on standards that are intended for well established companies. This guide will not discuss listing on the First North. As regards the Finnish regulatory framework, Finland is a member of the EU and has therefore implemented the various EU directives relating to the securities market. In respect of national legislation, the securities market in Finland is governed primarily by the Securities Market Act ( arvopaperimarkkinalaki 495/1989, as amended), which is further supplemented by decrees issued by the Ministry of Finance, guidance by the FIN-FSA and also self-regulation by, inter alia, the Helsinki Exchange. 2.2 General listing requirements The following is a list of the general listing requirements under the rules of the Helsinki Exchange: the company must be duly incorporated or otherwise validly established according to the laws of its place of incorporation or establishment; the shares of the issuer must (i) conform with the laws of the company s place of incorporation and (ii) have the necessary consents; the shares must be freely negotiable (limitations on the transferability of the shares are typically considered to restrict free transferability in this meaning); the application for listing must cover all issued shares of the same class; annual financial reports of the company and its consolidated group of companies for at least three years must have been prepared and disclosed; the line of business must have a sufficient operating history (a company that has conducted its current business for three years and can present financial accounts for that time normally fulfills this requirement); the company shall demonstrate that it possesses documented earnings capacity on a business group level, or alternatively demonstrate that it has sufficient working capital for its planned business for at least twelve months after the listing (in other words, the company must be able to show that it can carry out its business); conditions for a sufficient demand and supply of the shares to be listed must exist; 6

7 a sufficient number of shares must be distributed to the public and the company must have a sufficient number of shareholders; and the expected aggregate market value of the shares must be at least 1m. Companies fulfilling the listing requirements are listed on the main Nordic List, which further divides companies into one of three segments based on their market value: Large Cap (market value over 1bn); Mid Cap (market value between 150m and 1bn); and Small Cap (market value below 150m The Helsinki Exchange may refuse an application for listing, even when all listing requirements are fulfilled, if it considers that the listing would be harmful to the market or the interests of the investors. An application for listing may, on the other hand, be approved even if all requirements have not been met, provided that the objectives behind the relevant listing requirements are not compromised or can be achieved by other means. The objectives behind the listing requirements are to facilitate sufficient liquidity and to promote confidence in the company, the exchange and the securities market as a whole. 2.3 Listing with the Helsinki Exchange When a company plans to apply for listing on the Helsinki Exchange, a preliminary meeting to discuss the listing is arranged with the Helsinki Exchange approximately two months prior to the planned listing. In this first meeting, the company presents itself and its business to the Listing Committee. Draft material should be provided two weeks before the meeting, and final material one week before the meeting. After the first meeting, another meeting is arranged to discuss the written application for listing. The final application for listing must be submitted to the Helsinki Exchange at least one week prior to the meeting of the Listing Committee that will review the application. Listed companies must enter into a written agreement with the Helsinki Exchange and commit to comply with all its rules and guidelines. When a company registered in another EEA country is listed on the Helsinki Exchange, it should primarily comply with the rules of the exchange in its home country. However, although the company does not as such need to comply with the rules of the Helsinki Exchange, deviations from the Finnish rules should not be made in a way that could be harmful to the Finnish securities market or the position of the investor. The company must pay a registration fee of 40,000 to the Helsinki Exchange before submitting the listing application. This registration fee is non-refundable. All listed companies must further pay an annual fee to the exchange depending on their market value. An important requirement for listing on a regulated market is the publication of a prospectus, which must be approved by the relevant authorities. In Finland, the prospectus must be prepared in accordance with the Securities Markets Act (and the decrees issued there under), implementing the European Prospectus Directive, as well as the European Commission s Prospectus Regulation. The prospectus can be published once it has received approval from the FIN-FSA. The Helsinki Exchange also requires that the approved prospectus be included in the listing application. Following the approval of the prospectus by the FIN-FSA, the shares may then be marketed and offered to the public. There are no rules, as such, that would provide specifically for the length of the offer or the subscription period of the shares (provided that any new shares issued by the company are not issued to the existing shareholders pre-emptively). Offers are most often structured as bookbuildings where the shares are marketed for a period of some two weeks to potential subscribers in advance of a formal subscription period, which would typically last no more than a couple of days. In this respect, the FIN-FSA has issued guidance to the effect that the subscription period should not be interrupted by the issuer/arranger on the first day of the subscription period, nor during any given 7

8 subscription day. For a general timeline regarding the listing process, please see section 9 (IPO Timeline). 2.4 The Finnish book-entry securities system Securities listed on the Helsinki Exchange must as a rule be issued and incorporated in the Finnish book-entry securities system, maintained by Euroclear Finland, in which electronic book entries represent physical share certificates. Usually, book-entry accounts are administered by account operators, that is, credit institutions and investment firms that have been granted the right by Euroclear Finland to make entries into the book-entry system. Euroclear Finland maintains a register of shareholders of listed companies as well as book-entry accounts for those shareholders who do not wish to use the services of a commercial account operator (such as a credit institution or investment firm). The expenses incurred by Euroclear Finland in connection with the operation and maintenance of the book-entry securities system are borne by the issuers that participate in the system and the account operators. Before listing the securities, the issuer must enter into an agreement with Euroclear Finland regarding the issuance/incorporation of the securities in the book-entry securities system 2.5 On-going requirements for listed companies According to the Securities Market Act, a listed company has an on-going disclosure obligation as regards matters that may have a material effect on the value of its securities, as well as an obligation to disclose financial information on a periodic basis. A company applying for listing must be able to fulfill the disclosure requirements from the date on which the listing application is submitted to the Helsinki Exchange. Until the implementation of the revised EU Prospectus Directive which is to be expected not later than the end of June 2012, the company must also publish an annual summary of all statements that it has made pursuant to the disclosure rules during the preceding financial period. A listed company must maintain a public and a company-specific insider register. The Securities Market Act defines the persons who qualify as public insiders and who are obliged to disclose their holdings in the listed company as well as related trades. Listed companies must also comply with corporate governance rules and state in the relevant prospectus how the national recommendations on corporate governance have been fulfilled. The FIN- FSA regards the following areas as particularly important in relation to corporate governance recommendations: competence and independence of board members, remuneration of the board members and management, operating principles of internal control and organisation of risk management. Any departure from the recommendations must be disclosed and justified in the prospectus. A notification requirement also applies when a shareholder in a listed company acquires or disposes of shares in the company so that the shareholder s holding reaches, exceeds or falls below the five, ten, 15, 20, 25, 30, 50 or (two thirds) per cent of the voting rights or total number of shares in the company. Upon triggering this obligation, the shareholder is obliged to make a notification without undue delay to both the company and the FIN-FSA, followed by which the company must then publish the information with the Helsinki Exchange. 2.6 Upcoming legislative changes The Finnish Securities Market Act and related legislation is currently under review. This revision will, among other things, have some effect on listing requirements and the disclosure duties of listed companies, including the rules on prospectuses and disclosures of holdings. Also the technical structure and layout of the various acts governing the securities market in Finland will be reshuffled. 8

9 3 PREREQUISITES WHAT WILL BE REQUIRED 3.1 Corporate governance Finnish corporate governance principles are based on both legislation and self-regulation. The relevant legislation consists of provisions in the Companies Act, the Securities Market Act, the Auditing Act and Accounting Act and implements also a number of EU directives (such as the Company Law directives). The Finnish Securities Market Association has in June 2010 issued a Finnish Corporate Governance Code (the Code ) aimed to harmonise practices of listed companies and the information given to shareholders and investors. The Code applies to companies listed on the Helsinki Exchange, provided that it does not conflict with the regulations of the company s country of domicile. The Code replaced the Corporate Governance Recommendation for Listed Companies, which was issued in It is considered good stock exchange practice for issuers whose shares are listed on the Helsinki Exchange to comply with the Corporate Governance Code and to follow the recommendations issued by the Securities Market Association on good practice in the Finnish securities market. The FIN-FSA has also issued regulations and guidelines on the internal governance of the company and the organisation of its activities (Standard 1.3 on Internal Governance and Organization of Activities). The Finnish Corporate Governance Code complements the statutory regulations and obligations set forth in the various statutes. Under the corporate governance rules, Finnish listed companies are subject to the comply or explain principle. A listed company must publish a statement on the organisation of its administration and administrative policies, that is, a corporate governance statement, and the company should strive to comply with all recommendations of the Code. The statement should include a description of the corporate governance regimes(s) that the company is obliged to comply with or has committed itself to. A company may depart from an individual recommendation, but a remark to that effect must be included in the statement together with an explanation for why the company does not comply with the relevant recommendation. However, departure from peremptory provisions is not possible, and the company cannot choose to comply solely with peremptory provisions. Compliance with the Code is monitored by the Helsinki Exchange. The company should further provide a description of how the company s financial reporting has been organised, as well as information on the activities and members of the board of directors and any committees subordinate to the board of directors. The company s auditors are responsible for ensuring that the report has been published. 3.2 Rules on insider dealing and insider registers Before applying for listing, the company must make arrangements to comply with the applicable rules on insider information. Under the Securities Market Act and the Finnish Criminal Code, misuse of insider information by dealing in financial instruments and the provision of direct or indirect investment advice based on insider information are prohibited. Insider information should further not be disclosed to another person, unless the disclosure is made in the normal course of the exercise of employment, profession or duties. Insider information is defined as: precise information that has not been made public or otherwise been available on the market; information that relates to publicly traded securities; and information that may have a material effect on the value of the securities. 9

10 Insider dealing rules can be considered part of the disclosure regime involving listed companies, as according to the Securities Market Act, a listed company must maintain an insider register regarding holdings of securities issued by the company that are held by insiders and keep it available to the public. Insiders of a company that must be entered into the insider register include, for example, members of the board of directors, the CEO, auditors, their immediate family members as well as companies and other entities under their control. Moreover, a company-specific insider register must also be kept by issuers of securities subject to public trading. The company-specific register is not a public register and is required mainly to effectively control the flow of confidential and price sensitive information within the company. 3.3 Continuous disclosure A listed company is subject to a number of obligations as regards the provision of information to the market. The disclosure regime can be divided generally into the continuous disclosure obligation and the obligation to provide financial information on a periodic basis (please see section 3.4). A company applying for listing on the Helsinki Exchange must ensure that it has in place a functioning reporting structure that enables compliance with the continuous and periodic disclosure regimes. According to the Securities Market Act, the company is under a general obligation to continuously provide information to the market in order for investors to be able to make informed decisions on equal terms. The company must therefore without undue delay disclose to the Helsinki Exchange all price sensitive decisions and other information, which could have a material effect on the value of the securities. There are no exact guidelines on the nature of information that needs to be disclosed. The FIN-FSA requires that issuers should determine the general principles and procedures according to which it discloses information to the markets. These principles and procedures can be included in a disclosure policy statement that can be published on the company s website. If an information leak regarding price sensitive information has occurred before a disclosure has been made by the company, the company shall make an announcement on the matter. If price sensitive information has, without intention, been given to a third party (who in turn is not under a confidentiality obligation), disclosure to the market must be made without undue delay in order to level the availability of information to all investors. The listed company must have a website on which it discloses information required by the disclosure regime. Financial reports must be available for at least five years from their publication, and it is recommended that also all other information disclosed under the disclosure obligation be kept available to the public for five years from disclosure. Finally, the company must also publish an annual summary of all statements it has made pursuant to the disclosure rules during the preceding financial period. A notification requirement applies when a shareholder in a listed company acquires or disposes of shares in the company so that the shareholder s holding reaches, exceeds or falls below the five, ten, 15, 20, 25, 30, 50 or (two-thirds) per cent of the voting rights or total number of shares in the company. Not only does the disclosure obligation extend to trades in securities, it extends up front also to agreements or arrangements which, when executed, will result in the shareholder s holding crossing a relevant disclosure threshold. Upon triggering the disclosure obligation, the shareholder is obliged to make the notification without undue delay to both the company and the FIN-FSA. Once the notification has been received by the company in question, the company must then without undue delay publish and file the information with the Helsinki Exchange. Periodic disclosure financial information and financial reporting A Finnish listed company is under the obligation to provide financial information to the market on a regular and periodic basis. This involves the publication of interim reports, financial statement releases, financial statements and management reports. 10

11 Interim reports As a rule, listed companies must prepare interim reports for the first three, six and nine months of their financial period. Interim reports must be published within two months of the end of the report period and the time of publication must be disclosed as soon as it is decided upon. Under certain conditions provided for under a decree by the Ministry of Finance, certain listed companies may prepare purely written interim management statements without numeric data. Financial statement releases The contents of a financial statement release (ie, the release covering the entire financial year) correspond to the contents of the fourth interim report, and thus the same content requirements apply to them as to the interim reports for the first three and first nine months of the financial period. Naturally, the report period covers not only the fourth quarter but also the entire financial period. Financial statements and management report The financial statements containing a management report must be published within three months of the end of the financial period and no later than one week before the annual general meeting in which the financial statements are presented for adoption by the shareholders of the company. The obligation to publish financial statements and the management report concerns complete financial statements that have been prepared under the Finnish Accounting Act, including parent company financial statements with consolidated financial statements and a management report. In addition to the financial statements and management report, also an auditor s report must be published. 11

12 4 GETTING THE COMPANY READY 4.1 Advisors and the IPO Team The listing process requires the assistance of a team of advisors. The IPO team may include an underwriter, that is, an investment bank, lawyers, auditors and other parties. An investment bank, legal advisors and accountants should be retained early on in the listing process. Moreover, the due diligence process preceding the listing may require the use of specific advisers in relation to, for instance, environmental and technological matters. Underwriter Issuers often seek to engage external underwriters to bear or split the risk of subscribing and distributing the shares that are being offered in connection with an IPO. The underwriter usually has a tripartite role consisting of: offering procedural and financial advice to the listed company; subscribing the share issue partly or completely; and re-selling the securities to the public. When an underwriter is used, the listing company should enter into an underwriting agreement with the underwriter. Different types of underwriting arrangements are described below in section 5.4. An underwriting fee is payable to the underwriter, usually in the amount of up to four per cent of the listing proceeds. Lawyers Lawyers will advise the company on all legal issues relating to the listing, above all the prospectus and related approvals. The lawyers will also conduct a legal due diligence review in the company. Especially the following agreements may be relevant in the listing process and will require the use of lawyers: an underwriting agreement between the company and the underwriter; lock-up agreements; shareholders agreements; the agreement and listing application with the Helsinki Exchange; and an agreement with Euroclear Finland regarding the issuance/incorporation of the securities in the book-entry securities system. In terms of fees, lawyers fees are highly dependent on the transaction in question, the nature of the company that is to be listed and its specific industry. However, the legal fees for a purely domestic listing would likely be in the region of some 300,000. Auditors The company will further need auditors with experience in the auditing of listed companies and the listing process. The auditors will assist the company in verifying the fulfillment of the listing prerequisites, for example the audit of historical financial information and IFRS conversion, where necessary, as well as in setting up internal reporting systems compatible with post-ipo requirements. 12

13 The prospectus must also include a statement from the auditors regarding the financial statements from the previous three years. PR consultants In addition, the company may require the expertise of a public relations company to help build a media profile and manage the public relations actions in the listing process as well as after the listing, when the company will most likely interact with the media more frequently. 4.2 Corporate matters and resolutions The board of directors of the company usually takes the initiative for the listing process together with the shareholders. According to the Companies Act, a shareholders resolution is required for the conversion of the company into a public company, any changes required in the Articles of Association and the issuance of shares. Conversion into a public company The Companies Act provides for the conversion of a company into a public company, which is necessary as only public companies can be listed on the Helsinki Exchange. The conversion must be resolved upon by the shareholders meeting with a qualified majority of two thirds of the votes cast and shares represented at the meeting. The conversion can be effected only if the company fulfills the general requirements set out for public companies under the Companies Act. Once passed, the resolution to convert the company into a public company must then be filed with the Finnish Trade Register within one month after the resolution, and the registration request must also be accompanied by an auditor s certificate to the effect that the company s own capital is at least that of its share capital. Amendment of the Articles of Association Changes in the Articles of Association of the company are required in connection with the listing in order to: indicate in the company s name that it is a public company (ie, from oy ( osakeyhtiö ) to oyj ( julkinen osakeyhtiö ); incorporate the company s shares in the book-entry securities system; and remove any redemption/pre-emption clauses and consent clauses. The amendment of a company s Articles of Association also requires a majority of two-thirds of the votes cast and shares represented at the shareholders meeting, and these amendments can be resolved upon by same shareholders meeting that approves the conversion of the company into a public company. If so authorised by the shareholders meeting, the board of directors alone may resolve on any intended share issuance and related details such as typically pricing. The board of directors handles the preparations for the listing together with management and internally approves the prospectus and decides to apply for listing. The decision to enter the company s shares into the book-entry securities system is made by the shareholders meeting, and a provision regarding this must be included in the Articles of Association. The shareholders meeting must further authorise the board of directors to decide on the time period during which the securities should be entered into the system, that is, the registration date. The shareholders must be notified of this decision no later than four months prior to the registration date. In connection with the listing, the company may wish to introduce more share classes, which give its shareholders different voting rights. This may be appropriate where existing shareholders wish to retain control over the company following listing. The introduction of different share classes also 13

14 requires an amendment of the Articles of Association, which must be decided upon by the shareholders meeting. 14

15 Issuance of shares If the company intends to issue new shares in connection with the listing, a shareholder approval is required. There are generally two options available: the convention of a shareholders meeting to approve the issue directly based on specified terms/parameters (approval by a simple majority for a rights issue to current shareholders on a pre-emptive basis, and a qualified majority of two-thirds if the shareholders pre-emptive subscription rights are not applied, in all cases of both the shares present and votes cast at the shareholder meeting); or the convention of a shareholders meeting to authorise the board of directors to approve the issue (same majority as above needed for both pre-emptive basis and directed, respectively) in which case the authorisation is valid until further notice or for a set period, however, for a maximum period of five years from the date of the shareholders meeting. In most cases the pre-emptive rights of existing shareholders are derogated from in listings, meaning that a qualified majority of two-thirds of both the shares present and votes cast at the shareholders meeting are required. Employee incentive schemes The company may wish to introduce a share based incentive scheme for employees and/or management in connection with the listing, typically in the form of share options. Under Finnish tax laws, the grant of share options is not considered as a taxable event for the employee and it is, in this respect, irrelevant whether or not the employee pays any consideration for the stock options at the date of the grant. Instead, taxation is postponed to the time the share options are exercised (ie, the shares are subscribed for). The employee will be subject to income tax on earned income (ie, salary taxation) at the time the share options are exercised or if earlier, at the time the share options are transferred/sold by the employee. The granting of share option rights requires corporate resolutions similar to those of a share issue and any such schemes must also be duly disclosed by the company, for instance, in the listing prospectus 4.3 Due diligence General It is highly advisable and common practice that a due diligence process is performed in the company to ensure that the structural and operational prerequisites for listing have been or can be met by the company, and that the company can function as a publicly traded company in terms of all reporting and disclosure requirements. Another reason for conducting a due diligence is the collection of material and information for the listing prospectus that is, studying risk factors, financials, outlooks and the company s financial position in general. The FIN-FSA stresses the importance of the arranger of the float (usually the underwriter) having sufficient command of the requisite procedures, guidelines and documentation systems in order to successfully carry out an orderly due diligence process in the company. The FIN-FSA further recommends that the arranger prepares a summary of the due diligence exercise and the observations made. The FIN-FSA may request such summary in connection with its supervision activities. 15

16 In the due diligence process, in addition to a study on the general business environment and operations of the company, attention should be paid among other things to the following areas of the company s business: corporate governance; internal reporting; financial due diligence; risk management; human resources; and legal due diligence. Corporate governance The corporate governance investigation aims to ensure that the management of the company has been appropriately organised and that sufficient resources are available to facilitate increasing compliance and reporting. The division of power in the company should also be arranged so that no conflicts of interest, which could be harmful for the investors, may occur. Corporate governance includes the relationships between a company s board of directors, management, shareholders and other stakeholders, as well the company s objectives, the means of their attainment and related monitoring. All of these aspects should be covered in the due diligence process, and this exercise also contributes towards the alignment of the company with the applicable corporate governance rules and the Finnish Corporate Governance Code specifically. Internal reporting Another important aspect to study prior to listing is the company s ability to fulfill its reporting requirements. Listing requires a strict policy as regards reporting to the market and the media, and it is important that the company s reporting systems are reliable and that relevant risks and other aspects that may or may not potentially affect the value of the company s securities are properly identified. The management of the company should at all times be aware of the company s financial position and matters that should be reported to investors. In the due diligence process, focus should be placed on the evaluation of how well the company has organised its reporting systems and how these systems support the decision making in the company. Moreover, the recognition of price sensitive issues beforehand also strengthens the management of insider information and insider registers. Financial due diligence A financial due diligence is required in order to prepare the company for listing and for collecting the relevant data for the satisfaction of the prospectus requirements and the identification of related risks. In this respect, the financial condition of the company should be examined in detail, including developments affecting the issuer s income, capital resources, investments, outlooks, including the company s current and future tax position as well as pro forma financial information where required. This should also aim to identify financial risks such as movements in supply and demand and exchange/currency risks. The company s budgeting should also be examined in order to determine that management is capable of giving accurate predictions on the company s future, for instance, that such budgets can be reconciled with actual historical results. The information discovered in the financial due diligence may also be used to produce an accurate investment story. Risks The overall risk management investigation should include a description on the most significant risks according to the company s management, the priority and scope of these risks and an evaluation of the company s ability to deal with these risks, were they to materialise. In recent years, the FIN-FSA 16

17 has stressed the importance of adequate risk descriptions in prospectuses, and it is therefore necessary that a thorough risk analysis be carried out when preparing to list the company. 17

18 Human resources This part of the due diligence should focus on the company s management and the financial and public relations departments, and ascertain the appropriate allocation of resources in these departments of the company. An understanding of the remuneration policies and benefits, incentive schemes and geographical and operational breakdowns of employees may also be necessary for the purposes of the prospectus. Legal due diligence A legal due diligence is performed to thoroughly clarify any legal risk factors in relation to the company and its activities. The legal due diligence may be performed either by the listing company itself or external legal counsel in order to ensure that the information provided by the management of the company in the marketing and selling of securities is correct and not misleading. The legal due diligence process may focus on, inter alia, corporate governance, the company s agreements, industrial property rights, legal proceedings, regulatory matters as well as business mortgages and floating charges. The legal due diligence is helpful in order to provide contents on, inter alia, corporate structure, legal proceedings and material contracts for the purposes of the prospectus. Findings and reservations Findings in the due diligence process are used to prepare the company for listing and for satisfying the information requirements related to the listing prospectus, including the disclosure of risk factors. In case the due diligence process reveals that the prospectus may include information that can prove to be incorrect or incomplete going forward, a reservation may be included in the prospectus to this extent. However, the prospectus may need to be supplemented during the marketing and offering period should new information arise or the information already provided in the prospectus prove to be inaccurate or incomplete. 18

19 5 OVERVIEW OF KEY DOCUMENTS 5.1 Corporate resolutions and terms of offering In addition to a listing application, the Helsinki Exchange requires the following documents to be filed with the exchange prior to listing: a statement by the company s board of directors regarding expected performance in the current and immediately following financial reporting year; a list of the 50 largest shareholders of the company in terms of share capital and voting power, as well as their relative holdings and votes; a statement on the fulfillment of the listing requirements; the Trade Register extract of the company or corresponding document and disclosure of any decisions that have not yet been filed with or registered by the Trade Register; the Articles of Association, and any amendments thereto that have not yet been filed with or registered by the Trade Register; an extract from the minutes from the meeting of the board of directors regarding the decision to apply for listing; an opinion by an advisor in charge of the listing process, or another party approved by the Helsinki Exchange, regarding the satisfaction of the listing requirements and its operation as a listed company and the information required to be given about the company on the listing application; a statement by the company s management that it is familiar with the obligations of a listed company and the rules of the Helsinki Exchange, and that the company is capable of complying with these obligations; where necessary, a written consent for the Helsinki Exchange to perform an analysis of the company and the consolidated group, if necessary, at the expense of the company; a firm commitment to enter into an agreement with the Helsinki Exchange; agreement by the parent company and by the listed company that the listed company will not make any payments to its parent company that are treated as group contributions; evidence of the payment of the registration fee; a description of any facts needed in arranging the clearing and settlement of trades; and a prospectus, which has been approved by the FIN-FSA, or a prospectus approved in another member state of the EEA and duly notified to the FIN-FSA, and a document certifying such approval or notification. The Helsinki Exchange may grant an exemption from a particular listing requirement or decide not to require a particular piece of information upon application. 5.2 Prospectus According to the Securities Market Act, a prospectus must be published when the securities are offered to the public or when an application is filed to admit the securities to trading on a regulated 19

20 market. A prospectus does not need to be published, for example, when the securities are offered to less than 100 investors or only to institutional investors (as further provided by the Securities Market Act). The company must have prepared and published a prospectus approved by the relevant authorities prior to the listing and the prospectus must be available to the investors during the entire offering period. The prospectus must include a full description of the issuer s business, including financial information. It can be issued to institutional investors, retail investors and employees. The prospectus may be published either as one document or in three parts (registration document, securities note and summary), and a prospectus may also incorporate other documents by reference. For a Finnish domestic IPO, the prospectus must be prepared in Finnish and/or Swedish. The applicant may on special grounds apply for an exemption from the FIN-FSA in order to prepare the prospectus in English. Usually, such an exemption is available in case of listing of shares without a retail offering in Finland. The prospectus must be prepared in accordance with the Securities Market Act, which implements the EU Prospectus Directive as well as with the European Commission s Prospectus Regulation, where relevant. The prospectus must include sufficient information on the offer of securities and should include, among other things, a description of the issuer, the issuer group and its business, a description of the securities and the offer of securities, management and supervision, financial information and information on accounting standards, information on guarantees and risk factors. The prospectus should be accompanied by a summary of the information and a clear and detailed table of contents. When listed for the first time on the Helsinki Exchange, a prospectus prepared in accordance with the Finnish securities markets legislation must be submitted to the FIN-FSA at least four weeks before its intended publication. In case of a secondary listing/listing of additional shares, the prospectus must be submitted to the FIN-FSA at least two weeks before its intended publication. For retail offerings, the prospectus is published at the latest when the marketing period of the securities begins. The issuer is generally not obliged to supplement a prospectus after closing of the offering or the admission of the securities to trading. However, a supplement to the prospectus will be required when new circumstances, factual errors, or omissions capable of influencing an assessment of the securities occur or are noticed after the prospectus has been approved but before the securities are admitted to trading. With respect to Finnish issuers, the responsibility for the accuracy of the contents of the prospectus lies with the offeror/the issuer and/or the arranger of the listing insofar as any inaccuracy is attributable to the actions or omissions of the arranger. For foreign issuers, the relevant prospectus rules of their home member state or the home member state of the issue of securities should be observed and, if needed, explained to the Helsinki Exchange. The prospectus is the most important part of the marketing documentation, but some other marketing material may also be published to complement the prospectus. In case the share issue will be directed towards retail investors, a marketing document may be recommended in addition to the prospectus. The marketing document is a summary of information in the listing prospectus, and it includes a reference to the actual prospectus. 5.3 Legal opinions The Helsinki Exchange requires a legal opinion from an advisor in charge of the listing process (usually the external legal counsel of the company) to be filed with the exchange together with the application for listing. The legal opinion should ensure that the company fulfils the prescribed requirements for listing and for its operations as a listed company. 20

21 5.4 Underwriting agreement and related agreements Underwriting agreement In Finland share issues are usually underwritten. The underwriter is usually an investment bank or a syndicate of investment banks, with which the listing company enters into an underwriting agreement for the purposes of the underwriter taking responsibility for placing the shares on the market. Typically the underwriter is required in the underwriting agreement to subscribe for any shares offered but which are not taken up by investors. The underwriter s, or underwriting syndicate s, position can be regulated by means of the following types of arrangements: firm commitment underwriting the underwriter may subscribe for shares and sell them to intermediaries and investors; stand-by arrangement the underwriter commits to subscribe the shares that are not subscribed by shareholders or other entitled parties; all or none arrangement in this arrangement, the issuer may cancel the issue of shares, if not all shares have been subscribed; and best effort arrangement the share issue is arranged without a commitment to subscribe shares, and the underwriter is only paid a reward for sold shares. Firm commitment agreements and best effort agreements are the most commonly used underwriting agreements. In a firm commitment agreement, the underwriter subscribes for all shares and therefore bears the complete risk of selling the shares onwards to the market. This is therefore also the most feasible arrangement for the issuer, but naturally requires the payment of a sufficient risk premium to the underwriter. In Finland, firm commitment share issues are usually directed towards institutional investors only. According to a best efforts agreement, the share issue is arranged without an obligation to subscribe for a certain amount or portion of shares. Consequently, the underwriter does not act as the risk bearing party. As opposed to firm commitment arrangements, best efforts share issues are commonly directed towards retail investors. Lock-up agreement Lock-up agreements refer to an agreement between the underwriter and the insiders of the company, such as major shareholders and management. Lock-up agreements aim to stabilise the development of the shares following the listing and prohibits company insiders from selling their shares in the company, typically for a period of some 180 days. Overallotment and Greenshoe options Overallotment or green shoe options, that is, arrangements under the underwriting agreement to sell more shares than are being offered (commonly 15 per cent), are commonly used on the Finnish market. Overallotting shares is useful in order to stabilise the market in the company s shares after the listing and provide liquidity, particularly where demand for the shares exceeds the amount offered. In order to effect the overallotment, underwriters may resort to stock lending agreements in order to place more shares on the market, thereby creating a short position. The shares are subsequently bought back by the underwriter in order to cover the short position. The issuer or its major shareholder may also have granted the underwriter a call option in order for the underwriter to purchase shares in order to cover its short position. Such stabilisation activities are generally allowed within the limits set out in the EU Commission Regulation 2273/

22 5.5 Listing application and other exchange filings The final application for listing must be filed with the Helsinki Exchange seven days prior to the meeting of the Listing Committee, at the latest. The approval of listing will be made by the Listing Committee, which meets on a monthly basis. The company shall present itself and its business to the Listing Committee in a meeting some two months before the contemplated listing date. A written application will be addressed in another Committee meeting prior to the listing. Drafts must be provided two weeks before each meeting and final material for the company presentation and the final application must be provided one week before the respective meetings. The application for listing must be in writing, and should include the documents mentioned above in section Marketing documentation Securities may not be marketed to the public in Finland unless the issuer has published a prospectus that has been approved by the relevant supervisory authority. Any kind of actions taken to promote the sales of securities are considered marketing, such as direct marketing, newspaper marketing, media campaigns, marketing on the internet or road-shows. The marketing documentation must be accurate and not misleading, meet the standards issued by the FIN-FSA and indicate when and where the prospectus is available. Marketing of the securities can be carried out by means of media campaigns or road shows, where the investment story is presented. The company should make sure that the information given during presentations is complete, correct and not misleading and that no unpublished price sensitive information is provided. Securities must not be marketed to the public before the prospectus has been published. All material used should be prepared carefully and all questions should ideally be answered according to a carefully prepared Q&A script. All marketing material, including electronic material, must be provided to the FIN-FSA within two business days after the prospectus has been submitted to the FIN-FSA for approval. In addition, any material containing a reference to the marketing material, such as flyers, newspaper advertisements and posters, should be provided to the FIN-FSA as well. An individual advertisement does not necessarily need to portray the securities perfectly, however, the information provided in the marketing material must not be presented in a way that focuses only on some parts of the securities characteristics at the expense of others. The company should be able to prove the accuracy of the comparisons and adjectives used in the marketing material at any time. 22