Publication of listing guidelines by the Luxembourg Stock Exchange with respect to SPACs
26 August 2021
26 August 2021
The Luxembourg Stock Exchange has recently published a framework (accessible here) with the objective to provide guidance to sponsors and other professional intermediaries in the context of a listing of securities issued by SPACs on its markets (the "SPAC Guidelines").
However, before discussing in more detail the SPAC Guidelines it should be worthwhile taking a general look at the nature of SPACs and the main aspects to be taken into account when a SPAC intends to have its securities admitted to trading on a stock exchange.
A SPAC , a special purpose acquisition company, is a blank check company which has primarily been set up in order to raise the necessary funding with respect to the acquisition of a future, not yet identified, target company in a reverse merger.
Usually, a SPAC can only use a restricted timeframe during which the target company is to be identified and its acquisition to be completed (such timeframe in many instances ranging between 18 and 24 months). If the SPAC is unable to complete the acquisition of an appropriate target company by the applicable deadline, the funds that have been raised from investors must be returned to the investors. Typically, the investors also have the right to redeem the shares they acquired in the preceding IPO and have their original investments paid back to them prior to the acquisition taking place should they not approve of the target company selected and prefer to exit the structure.
Although SPACs are often structured similar to private equity funds they do not fall under the scope of Directive 2011/61/EU on alternative investment fund managers as they have been set up with the aim to become a fully operating company or at least a holding company of a group including the target company once the acquisition of the target company has been fully consummated.
Given that the SPAC, despite being a shell company, is a corporate entity with legal personality it is generally allowed to have its shares or units admitted to trading on a public stock exchange, thus enabling investors to benefit from all the advantages in terms of trading and information disclosure which are offered by listed companies.
Since a SPAC is ultimately a legal entity which is not that much different from other operating companies in terms of its corporate structure no particular, i.e. SPAC specific, listing and prospectus approval regime applies to it. Consequently, in order to obtain a listing on the Luxembourg Stock Exchange a prospectus must be produced and approved by the relevant competent approval authority under general prospectus rules.
In this respect, two main market venues are offered by the Luxembourg Stock Exchange, i.e. the regulated market and the Euro MTF market. An admission to trading on the regulated market requires the prior approval by the Commission de Surveillance du Secteur Financier (CSSF) of a prospectus compliant with Regulation (EU) 2017/1129 (the "Prospectus Regulation") provided Luxembourg is indeed the SPAC's home Member State for prospectus purposes. Once approved such a prospectus can also be passported into another EEA Member State for the purposes of a listing on such member state's regulated market.
A listing on the Euro MTF, being a Luxembourg multilateral trading facility, only triggers the application of the Rules and Regulations of the Luxembourg Stock Exchange (the "ROI"). The competent approval authority for such an Euro MTF listing is the Luxembourg Stock Exchange and not the CSSF.
However, often times in the context of an IPO conducted by a SPAC a prospectus under the Prospectus Regulation will already have to be approved for the purposes of making a public offer in Luxembourg. The publication of such a public offer prospectus is required prior to the IPO taking place pursuant to the Prospectus Regulation in non-exempt offer scenarios. Such a public offer prospectus will need to set out the terms and conditions of the offer as well as the main characteristics of the securities which are to be offered to the public. Furthermore, the total amount of the offer, the number of securities offered, the price of each security or the minimum subscription amount per investor must be specifically referred to in the prospectus. Also the investment scope and all parameters to be applied with respect to the identification and acquisition process of the future target company must be sufficiently described.
Once listed on a regulated market of the Luxembourg Stock Exchange, the SPAC will be subject to all applicable rules, in particular under Regulation (EU) No 596/2014 on market abuse (the "Market Abuse Regulation"), the Luxembourg law of 11 January 2008 on transparency requirements (the "Luxembourg Transparency Law") and the ROI. With respect to a listing on the Euro MTF in addition to the Market Abuse Regulation in terms of disclosure requirements only the rules set out in the ROI will be applicable, such issuers not being subject to the Luxembourg Transparency Law.
Should it be intended to list the target company, once the reverse merger has been consummated, it is important to note that the question under what conditions, in particular in respect of the assessment whether a new prospectus focusing on the target company will have to be approved, requires an additional, separate analysis given that with respect to such listing the newly acquired company and not the SPAC would be the issuer. Likewise, any ongoing disclosure obligations triggered by such a listing would need to be analysed again putting the focus on the newly formed company after the acquisition of the target company.
As mentioned above the Luxembourg Stock Exchange has published specific guidelines which it recommends that SPAC issuers should take into account when structuring their listing project. These recommendations are the following ones:
1. Funds raised by SPACs should be placed in an escrow account with a regulated financial institution and issuers shall document an order of priority for outgoing payments.
2. The issuer should grant redemption rights to the SPAC shareholders and describe the conditions under which the rights can be exercised.
3. The majority of the shareholders should approve the business combination with the target company in a general meeting (de-SPAC process) and the issuer shall provide the shareholders with the information necessary to make an informed decision about the exercise of their redemption rights.
4. In the prospectus accompanying the admission to trading, the issuer should describe its business strategy to deliver insights on the target industries and geographies where it seeks acquisition opportunities.
5. The timeframe for the consummation of the business combination shall be defined and limited in time.
The Luxembourg Stock Exchange emphasizes that the SPAC Guidelines are not to be understood as an exhaustive or mandatory list of features that any SPAC would need to comply with in order to obtain a listing on the Luxembourg Stock Exchange. Deviations from these recommendations in specific cases might therefore be possible.
Consequently, as part of its general review and approval process, the Luxembourg Stock Exchange reserves the right to consider any other feature of a SPAC (e.g. management lock-up periods, sponsor commitments or remuneration mechanisms) in the course of a listing request or, in case a listing on the Euro MTF is to be achieved, of a prospectus approval request.
Therefore, the purpose of the SPAC Guidelines is foremost to provide guidance and to complement the general admission rules set forth in the ROI.
Authors: Isabelle Lentz, Partner, Fabien Debroise , Partner and Markus Waitschies, Senior Associate
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.