The Covid-19 outbreak has already had an impact on most businesses within the affected jurisdictions and listed companies make no exception. While among any company’s current main priorities are employees’ protection and strategies for overcoming these difficult times, when it comes to listed companies, ongoing disclosure obligations must also remain on the list of priorities.
Regulatory framework. Under the EU Market Abuse Regulation (MAR), issuers of financial instruments (i.e., equity and debt), listed either on the regulated market (e.g., the main market operated by the Bucharest Stock Exchange) or on a multilateral trading facility (e.g., the AeRO market) have an obligation to disclose to the market inside information which directly concerns them, in a complete and timely manner.
From a local standpoint, the obligation is detailed in terms of timing and procedure in Regulation No. 5/2018 issued by the Romanian Financial Supervisory Authority (Regulation 5, respectively the FSA), which also provides a list of examples of information which is considered inside information, subject to the passing of the inside information test provided by MAR.
Context. But what changes has the Covid-19 outbreak brought to the table? The above obligation is still merely business as usual for issuers and the existence of the pandemic has (almost) lost its novelty character for the business environment, but the particular impact of the outbreak’s consequences on issuers must be carefully considered in light of MAR.
Time remains of the essence in respect of issuers’ disclosure obligations. Whilst both the European Securities and Markets Authority (ESMA) and the FSA have shown flexibility during the past weeks in their approach towards various obligations of the main actors on the capital markets scene, on this particular topic ESMA has issued a recommendation meant to strengthen the already existing transparency commitment, stating that “Issuers should disclose as soon as possible any relevant significant information concerning the impacts of COVID-19 on their fundamentals, prospects or financial situation […]”.
Hence, although it is expected that the outbreak might pose some challenges in issuers’ disclosure-related internal assessment process, the compliance with the requirement to disclose as soon as possible and in any event within the 24 hours term from the event’s occurrence or from the moment when issuers acquire knowledge of it remains of importance.
What could amount to inside information these days? The issuers’ mission to determine whether a specific piece of information amounts to inside information, specifically whether it is of a precise nature and the extent to which, if it were made public, would be likely to have a significant effect on the prices of the issuers’ shares and/ or bonds (or other financial instruments) might prove to be more difficult than usual, given the rapid pace of the outbreak and the uncertainty and the increased volatility it has already determined.
Any assessment must be done bearing in mind that the test provided under MAR is applied by reference to a reasonable investor. Hence, information would be considered to have a significant impact on the securities’ price if a reasonable investor would be likely to use it as part of the basis of his investment decision. This justifies (and maybe even requires) a prudent approach rather than a relaxed one when it comes to disclosure.
The above-mentioned list of examples provided by Regulation 5 comprises both factual circumstances with significant impact on issuers’ activity and operational actions taken in the effort of overcoming this period which might catch our attention in the Covid-19 context, out of which we note the following:
- Contractual infrastructure – a decrease in the contractual value or the early termination of the contractual relationship with the same partner, which generated or was about to generate, either individually or on an aggregate basis, at least 10% of the net turnover or of the total revenues, as captured in the latest annual financial statements;
- Closure of business – initiation of procedures to cease or to resume the issuers’ entire activity or a significant part of it, as well as the actual cessation or resumption of such activity;
- Re-orientation efforts – product launching, offering new services or engaging in a new development process which significantly affect issuers’ resources;
- Market changes – situations related to products or production processes which might cause significant damages, either produced by issuers or which might affect the issuers;
- Eyes towards the future – engaging in or withdrawing from a main activity or implementing significant changes in issuers’ investment policy.
With a view to rather medium and long-term potential consequences of the Covid-19 outbreak, issuers’ incapacity to fulfill their payment obligations towards their bondholders and restructurings and reorganizations with significant impact on the issuers’ assets, debt, equity, financial position and profits and loss are also on Regulation 5’s list.
Of course, the above are mere examples and represent only a part of the aspects any issuer should consider, on a case-by-case basis, in its complex approach towards the disclosure process, bearing in mind that the mentioned significant effect on the prices of its financial instruments is by default variable and no general guidance in terms of amounts or percentages could be provided. The business as usual desideratum seems to be nowadays more topical than ever and, from the disclosure obligations’ compliance perspective, a fine balance between an efficient internal information flow and advisors’ experience might be key.
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