Financing possibilities for BME Growth companies
Among other advantages, BME Growth enables growing companies to raise new funds through a public offering upon their admission to trading. This allows companies to strengthen their capital base, diversify their shareholder base, and mobilize additional resources to implement planned investments. Listing on BME Growth facilitates access to capital markets to carry out capital increases through new cash contributions.
BME Growth companies wishing to carry out cash capital increases will need the approval of the general meeting of shareholders, which may delegate to the board of directors the implementation of the already approved share capital increase (with or without exclusion of shareholders’ preemptive rights). Alternatively, the general meeting may authorize the board to increase the share capital on a discretionary basis up to a maximum of 50% of the company’s share capital at the time of approval. The general meeting may also suppress preemptive subscription rights. This will require, among other things, an independent expert’s report if the amount of the increase exceeds 20% of the capital at the time of the authorization. Otherwise, such report will be voluntary.
In both cases, the approval of the board of directors (or, as the case may be, the decision of the director with sufficient delegated powers) will be necessary to implement the cash capital increase under the approval of the general meeting of shareholders.
For those cases where the board of directors is empowered to discretionarily increase the share capital up to a certain amount, Act 5/2021 of April 12 extended to all BME Growth companies the specificities of companies listed on stock exchanges (regulated markets) with respect to share subscription. Among them, the possibility that the general meeting’s authorization may also entitle the board to exclude shareholders’ preemptive rights—limited to 20% of the share capital at the time. Thus, the board has more leeway to negotiate with investors and to design and implement the capital increase—albeit to the detriment of the existing shareholders’ ability to prevent dilution.
Without prejudice to corporate approvals, the company must also meet the requirements regarding transaction information documents.
In general, companies must prepare and issue a capital increase document subject to prior approval from BME Growth. It must be in accordance with Circular 2/2020 on requirements and procedure for capital increases in entities whose shares are listed for trading in the BME Growth segment of BME MTF Equity. The capital increase document will be abridged (ACID) or complete (CCID) depending on whether the company has published, within the previous 18 months, its Information Document for Admission to the Market (IDAM) or a CCID, or whether it has filed a prospectus.
Alternatively, if the capital increase consists of a public offering not exempted from the obligation to publish a prospectus (e.g., not addressed solely to qualified investors), companies must prepare and issue a public offering prospectus—and then file it with the Spanish Securities and Exchange Commission (CNMV) in accordance with Regulation (EU) 2017/1129 of the European Parliament and of the Council of June 14, 2017 (the “Prospectus Regulation”). The Prospectus Regulation provides for an additional alternative for BME Growth companies: the EU Growth prospectus. The EU Growth prospectus aims to facilitate access to capital markets for SMEs. It also offers issuers meeting certain criteria the possibility to prepare this document, which is simpler and less burdensome than a full prospectus. At the same time, the EU Growth prospectus maintains an adequate standard of information for investors participating in a public offering.
In relation to the above, the design of equity raising and equity restructuring transactions in BME Growth companies is becoming more sophisticated. There is a recent example of a cash capital increase with preemptive rights (the “cash increase”) combined with a capital increase through set-off aimed at converting previous convertible loans (the “offsetting increase”). While the company was designing and preparing the cash increase (which in this case included a single-document EU Growth prospectus), there was a (bilateral, separate) negotiation with third party investors to underwrite loans convertible to company shares. This parallel financing allowed the company to raise funds throughout the process of preparing the cash increase in order to implement planned investments and advance its business plan.
In this transaction, the general meeting first approved both increases at the same meeting, establishing a maximum amount for each of them and delegating their implementation to the board. After filing the EU Growth Prospectus, the company launched the cash capital increase with the corresponding period for the exercise of preemptive rights, an additional allocation period—open to shareholders who had previously exercised their preemptive rights—and a discretionary allocation period—open to third parties. Upon completion of the public offering and publication of the ACID, the cash increase deed was executed simultaneously with the offsetting increase deed—thus converting the loans contracted throughout the process to company shares.