New listing and reporting requirements for SOCIMIs on the Spanish Alternative Equity Market (MAB)

June 2016 | SPOTLIGHT | CAPITAL MARKETS

Financier Worldwide Magazine

On 10 February 2016, the Alternative Equity Market (Mercado Alternativo Bursátil or MAB) published the revised text of its general regulations and a series of new circulars providing a comprehensive review of the market’s operation, the listing requirements and the reporting obligations of companies whose shares can be traded on the MAB.

This article explains the most significant updates concerning admission and reporting obligations for Spanish real estate investment entities (Sociedades Cotizadas de Inversión Inmobiliaria or SOCIMI).

Changes in listing requirements and reporting obligations for SOCIMIs

MAB regulation now includes a more detailed description of the obligations and duties of issuers of securities admitted to trading. Specifically, it lays out the rules of conduct with regard to market abuse, information disclosure and processing and obligations concerning the market capitalisation of entities.

Updated listing requirements

On joining the MAB, companies other than SOCIMIs must have a market capitalisation of less than €500m. If, during a continuous period of six months, the company’s market capitalisation exceeds €500m, it must request admission to a regulated market within nine months. SOCIMIs are, however, excluded from this requirement, and no market capitalisation cap applies in their case.

Shareholding distribution requirements for SOCIMIs have not been amended. Shareholders owning less than 5 percent must hold not less than: (i) €2m of the SOCIMI’s share capital (market value); or (ii) 25 percent of the SOCIMI’s total share capital. The MAB has historically allowed SOCIMIs to disregard distribution requirements at the time of admission provided that issuers allocate a number of shares (representing €2m at market value) and cash (€2m) to a liquidity provider to cover purchase and sale orders in the market. The new rule is that they must meet distribution requirements within one year from admission. In the case of SOCIMIs that have been already admitted, this one-year period will begin on the effective date of Circular 6/2016, 9 March 2016, and will extend to 9 March 2017. If a SOCIMI does not comply with this obligation, the company may be delisted, which would affect its tax status. Note that, in practice, the MAB understands that the distribution requirements are satisfied when the SOCIMI has at least 20 non-related shareholders.

The new regulation Circular requires that SOCIMIs that will be listed on the MAB have an internal code of conduct regarding securities markets. The SOCIMI’s board of directors must provide confirmation that the company has adopted this document.

Additional formalities and documents are required for admission. In addition to the admission memorandum (whose content has been expanded and is now regulated in more detail), SOCIMIs must prepare and submit, as applicable, a valuation report from an independent expert to determine the initial trading price, unless they have previously placed shares or carried out a relevant transaction for establishing this price within six months prior to application for admission. The SOCIMI’s board of directors must also issue a report on the statements included in the admission memorandum and confirming that, after due enquiry, the company has sufficient working capital to conduct its business for the 12 months following admission. The SOCIMI’s board of directors will have to issue a report confirming that the company’s organisational structure enables it to comply with the applicable MAB reporting obligations, particularly with regard to internal control of financial information. These reports will be analysed and evaluated by the SOCIMI’s registered adviser.

The new regulation also includes specific obligations related to legal and financial due diligence. The auditor must issue a comfort letter regarding the financial figures set out in the admission memorandum, and financial and legal due diligence is required. The SOCIMI’s registered adviser (a mandatory adviser similar to the nominated adviser of the London Alternative Investment Market, AIM) is specifically responsible for verifying that the financial and legal due diligence conducted is adequate for the purposes of admission.

The cover of the admission memorandum must include a warning to investors about the increased risk of investing in the MAB, which requires advice from an independent professional.

Updated reporting requirements

The reform also increases the reporting requirements that SOCIMIs must fulfil once admitted to trading. While trading on the MAB was already subject to market abuse regulations and certain transparency obligations, the recently enacted regulation introduces more specific requirements.

SOCIMIs must publish a half-year financial report. It is now obligatory to submit the report for limited review by the auditor. This obligation will be applied, for the first time, to the financial information for the first semester of 2016. Because of this new requirement, the deadline to disclose the half-year report is extended from three to four months following the close of the first semester of every year. Note that the annual financial report is subject to full audit.

SOCIMIs must notify the market in case a director does not sign the financial statements and explain why, and in case any votes are cast against the accounts. They must also report any limitations of scope, lack of opinion or provisos in the auditor’s report.

SOCIMIs must immediately report significant shareholdings to the market as soon as they receive notification from their shareholders.

Finally, SOCIMIs must report, as swiftly as possible and well in advance, all corporate and financial transactions that affect the securities, especially corporate decisions and policies regarding the rights associated with these securities, (recognition, amendment, and effective terms and dates). Corporate resolutions regarding rights for any payment must be approved at least five days before the payment date.

Conclusion

The reform introduces a number of new requirements aimed at increasing investor confidence in the market. This confidence should normally have a positive impact on the operation and recognition of the MAB and the listed companies. The expectation is to attract more investors and issuers. However, some of these requirements are stricter than those set out for admission to the Spanish regulated markets, where working capital, financial and legal due diligence are left to market practice and standards and are not specifically regulated by mandatory provisions. The MAB authorities are aware of the need to have a balanced regulatory framework, and we are confident that the recently enacted rules will be applied in daily operation in a manner consistent with good market practices, expectations and the specific size and features of small and medium capitalised SOCIMIs looking for admission to a non-regulated and alternative market such as the MAB.

Juan Aguayo is a partner and María José Víboras is a senior associate at Cuatrecasas. Mr Aguayo can be contacted on +34 91 524 71 26 or by email: juan.aguayo@cuatrecasas.com. Ms Víboras can be contacted on +34 91 524 77 23 or by email: mjose.viboras@cuatrecasas.com.

Juan Aguayo and María José Víboras

Cuatrecasas