LEXOLOGY Getting the Deal Through: Equity Capital Markets

Market snapshot

Recent activity

How would you describe the general state of equity capital markets in your jurisdiction, including notable recent activity and deals?

Austrian equity capital markets activity was somewhat subdued in 2017 and 2018, with only one successful initial public offering (IPO) on the Vienna Stock Exchange (VSE) in 2017 (BAWAG) and no IPOs in 2018. While there were some rights issues in 2017 and 2018 (Agrana, BUWOG, BKS Bank, Wolford AG, Bank für Tirol und Vorarlberg and S&T) and two major accelerated bookbuilding transactions, Austrian corporates still tend to be primarily bank-financed.

Since 2018 there has also been a statutory basis for companies to delist from the official market – the highest ranking market segment – of the VSE. In 2018 three companies (BUWOG, Pankl and C-Quadrat) delisted and further delistings are allegedly in the pipeline.  

Recognised exchanges

What recognised exchanges operate in your jurisdiction, and what are the pros and cons of listing in each?

Austria has only one securities exchange: the VSE. Further information on the VSE and its market segmentation is available on the VSE website.

Reforms and case law

Are any regulatory reforms envisaged or underway with regard to equity capital markets? Has there been any recent case law affecting the markets?

Since the beginning of 2019, market segmentation at the VSE for equities has been significantly streamlined. There is now only one EU regulated market (amtlicher handel) and the so-called ‘third market’, which the VSE operates as a multilateral trading facility.

In addition, the VSE offers two new entry-level segments (direct market and direct market plus) to provide fast, inexpensive and easy access to the capital market for SMEs. 

Tech developments

Have there been any notable recent developments in financial technology (fintech) which affect equity capital markets in your jurisdiction?
While there have been no notable recent fintech developments affecting equity capital markets in particular, fintech and digitalisation are undoubtedly affecting capital markets generally. For example, 2018 saw:

• the first issuance of a Schuldschein transaction which was entirely done on a private permissioned blockchain;
• the first offering of a security token (Hydrominer jouissance rights); and
• keeping of the share register of a private company on the blockchain (CONDA).

Similar to other EU regulators, the Austrian Financial Market Authority has published guidance on the regulatory treatment of certain activities involving cryptocurrencies, digital assets and token offerings on the fintech navigator section of its website.

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Regulatory framework

Legislation

What primary and secondary legislation governs the issue and trade of equity securities in your jurisdiction?
The main Austrian legislation governing the issue and trade of equity securities are:

• the Stock Exchange Act;
• the Capital Markets Act; and
• the Securities Supervisory Act 2018.

In addition, there are various harmonised provisions at the EU level, including the EU Market Abuse Regulation (596/2014) and the EU Prospectus Regulation (217/1129).

Regulators

Which authorities regulate equity capital markets in your jurisdiction and what is the extent of their powers?
The main regulators are the Financial Market Authority (FMA) and the Vienna Stock Exchange.

The FMA mainly overseas compliance with the Stock Exchange Act, the Capital Markets Act and the Securities Supervisory Act, unless compliance falls within the jurisdiction of the Austrian criminal courts. In this capacity, the FMA has a wide array of powers, which include:

• requesting information;
• issuing cease and desist orders;
• imposing fines; and
• publishing any misdemeanours on its website. 

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Listing

Requirements

What eligibility and disclosure requirements apply for primary listing of equity securities on recognised exchanges in your jurisdiction (eg, aggregate share value, free float requirements, trading record, working capital)?
Eligibility and disclosure requirements depend on whether securities are to be listed on the Vienna Stock Exchange (VSE)’s EU regulated market (amtlicher handel) or on the so-called ‘third market’, which is operated as a multilateral trading facility (MTF). In each case, to list securities on the VSE, an issuer must file an application with the VSE, typically including a securities prospectus approved by the competent home state regulator.

Key admission criteria for the VSE’s EU regulated market are as follows:

If the company is the universal successor to another entity and accounting is continuous, the period of existence of the other entity is calculated against the three-year period. No working capital requirements apply.

Key admission criteria for the VSE’s third market are as follows:

No working capital requirements apply.

Further information on listing requirements is available on the VSE website.

Exemptions

Are there any exemptions from the listing requirements?
Yes. For example, the three-year period of existence or set of financial requirements on the official market can be waived if this is in the interests of the issuer and the public. However, the company must have published at least one full year's worth of accounts.

Procedure and timeframe

What is the procedure and typical timeframe for listing?
The issuer must file an application for admission of the securities for listing on the VSE. The application must include:

• the approved securities prospectus (if needed);
• the issuer's articles of association;
• a register excerpt; and
• the issuer's compliance guideline.

The listing date is usually pre-agreed between the issuer and the VSE.

The VSE must decide on the application for admission of the securities within 10 weeks, although it usually issues a decision much quicker than this. In practice, issuers file a preliminary prospectus with the VSE, which does not yet contain the final price and volume offered (as these details will be determined once the bookbuilding process has been completed). Following such a filing, the bookbuilding process starts, whereby investors submit bids for purchasing the securities at prices that must be within a predefined offer price range or maximum limit. Simultaneously, certain marketing activities (eg, roadshows and press conferences) are carried out by the issuer and the underwriters. After the bookbuilding phase, the offer price is fixed and the securities are allocated. Lastly, the issuer must file and publish a supplement to the preliminary prospectus indicating the final offer price and the proceeds raised and costs incurred by the issue. 

Fees

What fees apply for an application to list equity securities?

Listing versus admission to trading

Is there a distinction between listing and admission to trading in your jurisdiction?
No.

Secondary listing

Are there any differences in the rules, restrictions and procedures for secondary listings of equity securities?
No.

Foreign issuers

Are there any differences in the listing rules and procedures for foreign issuers?
No.

Delisting

Under what circumstances can a company be delisted? What rules and procedures apply?
As of 3 January 2018, issuers may request a voluntary delisting of their shares which are admitted to trading on the official market of the VSE, provided that:

• the respective shares had been listed there for at least three years; and
• investor protection is not jeopardised.

The latter requirement is deemed to be fulfilled if:

• the applicant provides evidence that the shares continue to be admitted to trading on a regulated market of at least one European Economic Area member state with similar delisting requirements; or
• a delisting offer document according to the fifth part of the Austrian Takeover Act was published during the past six months.  

A delisting application may be submitted only if:

• a shareholders’ meeting has adopted a corresponding resolution with a majority of at least 75%; or
• this is requested by shareholders holding at least 75% of voting share capital. 

To compensate shareholders for the delisting, shareholders are permitted to sell their shares at a fair price based on a delisting offer document. To this effect, the price offered to shareholders as compensation may not be lower than (collectively):

• the highest consideration paid or agreed to be paid by the offeror (or parties acting in concert) for the shares during the past 12 months;
• the volume-weighted average share price of the past six months before the announcement of the offer;
• the volume-weighted average share price of the past five trading days before the announcement of the offer; or
• a reasonable offer price if the above-mentioned figures are clearly below the fair value of the company because there is no sufficient link between the actual fair value of the shares and their stock price (eg, in the case of low liquidity and high volatility).

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Initial public offerings

Structure

What are the most common structures used for IPOs in your jurisdiction, and what are the advantages and disadvantages of each?
The main methods of issuing shares in an initial public offering (IPO) are:

• offers for subscription – the issuer makes an offer to the public to subscribe for newly issued shares; and
• offers for sale – one or more selling shareholders makes an offer to the public to purchase shares already issued.

Most Austrian IPOs are a combination of these two options, as this permits shareholders to exit part of their investment while the company receives fresh money from the IPO.

Procedure and timeframe

What is the procedure and typical timeframe for launching an IPO?
The timetable for launching an IPO is usually six to 12 months. This depends on various factors, such as:

• whether a dual or single listing is sought;
• whether certain pre-IPO restructurings need to be completed; and
• the time that it takes to prepare the equity story and business plan.

The initial phase involves:

• appointing consortium banks and the arranger, as well as consultants and advisers;
• conducting legal, financial and business due diligence;
• carrying out limited pre-marketing;
• conducting research activities; and
• preparing the prospectus.

The main phase involves:

• submitting the prospectus to the prospectus approval authority (the Financial Market Authority (FMA));
• obtaining approval of the prospectus from the FMA;
• filing an application for listing with the Vienna Stock Exchange (VSE);
• registering any increase in share capital with the commercial register;
• conducting a public marketing campaign;
• processing admission for listing from the VSE;
• bookbuilding and pricing; and
• publishing a pricing supplement.

The post-phase involves:

• transferring proceeds from the offering (minus commissions and expenses) to the issuer; and
• performing stabilisation.

Due diligence

What due diligence is required and advised in the IPO process?
In a typical IPO process, due diligence will relate to legal (including regulatory, where relevant), financial and business due diligence in respect of the IPO company’s operations and business plan. This will cover both documentary due diligence and discussions with management. Material findings from the due diligence will be disclosed in the prospectus.

Pricing and allocation

What rules and standards govern share pricing and allocation in the context of an IPO?
Under the rules introduced by the EU Markets in Financial Instruments Directive (2014/65/EU) (MiFID II), underwriters are required to keep records of allocation decisions including:

• their “overarching allocation policy”;
• discussions with issuer clients and the agreed proposed allocation per type of investment client;
• the content and timing of allocation requests received from each investment client with an indication of their type;
• any further discussions and instructions or preferences on the allocation process provided by the issuer client, other members of the syndicate or the firm itself, where relevant; and
• the final allocations communicated to each individual investment client.

In addition, underwriters must provide justification for the final allocation made to each investment client, including detailed reasoning, unless such detail has been provided through the records maintained above.

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Follow-on offerings

Types/pros and cons

What types of follow-on offering are commonly used in your jurisdiction, and what are the advantages and disadvantages of each?

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Prospectus requirements

Applicability and exemptions

When must a prospectus be filed? Are there any notable exemptions?
Publication of a prospectus is usually required if transferable securities are:

• offered to the public; or
• admitted to trading on a regulated market of the Vienna Stock Exchange (VSE).

As the third market is not an EU regulated market, no prospectus is required if there is no offer to the public. Instead, a short info-memo must be filed with the VSE; however, this will not be published.

No prospectus is required if:

• an offer is made to qualified investors only;
• an offer is made to fewer than 150 non-qualified investors per European Economic Area (EEA) member state;
• the minimum consideration paid by any investor is at least €100,000 or securities are denominated in amounts of at least €100,000; or
• the total consideration for transferable securities offered in the EEA member states is less than €2 million.

Content

What must the prospectus contain?
As a disclosure and liability document, the prospectus must contain all necessary information to enable investors to make an informed assessment of an issuer’s assets and liabilities, financial position, profits and losses, and prospects, as well as of the rights attaching to the securities offered in accordance with the EU prospectus regulation and the Capital Markets Act. Disclosure also extends to:

• risk factors specific to the issuer and the securities offered;
• audited historical financial information; and
• interim financial information (if published).

If there has been a significant change in the issuer's position (eg, a significant acquisition), pro forma financial information must be included, showing how any significant transaction would have affected the issuer's assets, liabilities and revenues had it occurred at the beginning of the period covered by the most recent financial information. Information must be presented in a way that is comprehensible, easy to analyse and mindful of the particulars of the relevant issuer, its business and the type of securities offered.

Filing and approval procedure

What is the procedure for filing for and obtaining prospectus approval from the regulator? Can draft prospectuses be submitted to the regulator for preliminary comment?
Prospectus approval procedures with the Financial Market Authority (FMA) are entirely electronic. The FMA is prepared to review multiple versions of the draft prospectus. It will provide detailed comments and raise points for clarification both by email and by telephone until the prospectus is ready for approval. The timing should be pre-discussed with the FMA early on.  

Prospectus liability

What types of prospectus liability can arise (eg, statutory, contractual, tort)? Which parties may be held liable?
Under the Capital Markets Act, the issuer and those associated with a public offering can be held liable if investors suffer losses as a result of relying on any misstatement or material omission in the prospectus.

In addition, general civil liability rules apply if, for example, no prospectus has been published because the issuer relied on an exemption from the prospectus requirement. These two alternatives are the most common basis for remedies sought in connection with securities transactions.

Under the Capital Markets Act, the issuer, experts (persons responsible for drafting specific portions of the prospectus), auditor, brokers, entities reviewing the prospectus (which will be banks or auditing firms, if any) and VSE (if it has reviewed the prospectus) can also be held liable for any violation of the act in connection with an offering. The liability standard varies. Whereas slight negligence on the side of the issuers and experts can trigger liability for them, brokers can be sued only in case of wrongful intent or gross negligence on their part. Auditors have a defence by proving that they had no knowledge that the financial statements audited by them would serve as a basis for a prospectus and of any misstatement in respect of a prospectus (which is unlikely).

Under general civil law liability rules, in principle any person involved in a securities transaction (eg, the issuer’s officers) may be exposed to damage claims, provided that they are responsible for causing damage to an investor through their wilful or negligent behaviour in connection with securities transactions.

Under the Capital Markets Act, investor damage claims become time-barred within 10 years from the expiry of the public offer. Under general civil law, claims become time-barred within three years from the date on which the investor learned of the damage and the party inflicting such damage.

If no prospectus has been published in a public offering, retail investors can rescind contracts relating to the securities issued.

What defences are available for liable parties?
Defences available for liable parties depend on the specific circumstances of the case and on the relevant party’s liability standard, but may include the following: 

• The person responsible reasonably believed that the statement was true and not misleading and can demonstrate that in so doing there was no wilful or negligent behaviour on their behalf.
• Where the loss is caused by a statement purporting to be made by or on the authority of an expert, the statement was included in the prospectus with the expert’s consent and the person responsible believed that the expert was competent to make and authorise the statement.
• A supplement or correction was published in a manner calculated to bring it to the attention of potential investors before the securities were acquired.
• The person suffering the loss acquired the securities and knew that the statement was false or misleading, or had knowledge of the omitted matter.

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Marketing

Methods

What methods are commonly used to market equity security offerings in your jurisdiction?
The following methods are commonly used:

• roadshows;
• early look and pilot phishing presentations from management to institutional investors;
• research reports;
• press releases; and
• advertisements and retail folders in case of retail offerings to the public.

Rules and restrictions

What rules and restrictions (if any) apply to the marketing of equity securities?
Marketing materials do not require prior approval by the Financial Market Authority and need not be filed with a regulatory body. However, any advertising activity commenced before the publication of a prospectus should be monitored carefully so as not to qualify as a public offer, as this would trigger prospectus requirements.

Advertisements must state that a prospectus will be or has been published and must indicate where it can be obtained. Advertisements must be clearly recognisable and the information contained therein must not be inaccurate, misleading or inconsistent with information provided in the prospectus.

With respect to marketing materials, the Supreme Court has held that marketing communication may be misleading if it only highlights the merits of an investment without adequately reflecting its risks. In addition, eye-catching statements on the merits of an investment in securities may influence the overall presentation of information and present a likelihood to mislead if no sufficiently clear disclosure of risks is attached in proximity to such eye-catching statements.

In addition, cold-calling restrictions must be observed when contacting prospects in Austria, because the use of telephone and electronic communication for advertising purposes is limited and generally requires the previous consent of the addressee.

Bookbuilding

To what extent is bookbuilding used in your jurisdiction, and how does the process customarily play out? What are the advantages and disadvantages of using this process?
Bookbuilding is among the standard pricing methods for equity offerings in Austria. It is an interactive mechanism by which institutional investors communicate orders (ie, indications of specific number of shares and price) usually within a set price range to the bookrunners. The price and size of the issue are not fixed until indications of interest have been received from potential investors following circulation of a published prospectus. On the last day of the offer period, the issuer, its shareholders and the underwriters determine the final price for the shares and agree on the final size of the offering and on allocation.

This process is perceived as evaluating the intrinsic worth of the securities offered and the company’s credibility in the public eye. On the other hand, key disadvantages include the fact that bookbuilding is based, to an extent, on the bookrunners’ subjective interpretations of indications received from a relatively small group of potential investors, usually with whom the bookrunners have an existing client relationship.

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Adviser roles and responsibilities

Describe the role and responsibilities of the following advisers in the context of equity securities offerings, including how their relationship with the issuer is formalised (eg, through terms of agreements):

(a) Banks/underwriters?
The underwriters coordinate and manage the offering. There is often a consortium of several underwriting banks. The bank leading the consortium (lead manager) is primarily responsible for managing the process and coordinating the company’s other advisers. Depending on the scope of their engagement letter, the underwriters typically:

• prepare the timetable and logistical organisation of the transaction;
• advise on the equity story and business plan;
• structure the offering process and develop marketing strategies;
• organise investor meetings;
• conduct a valuation of the issuer and recommend a pricing strategy;
• research coverage;
• underwrite the offering, bookbuilding and allocation;
• act as a listing agent; and
• perform stabilisation.

(b) Auditors?
Auditors prepare or verify any financial data for inclusion in the prospectus. They also issue private comfort letters for the underwriters and the company, providing assurance on the historical and any pro forma financial statements included in the prospectus.

(c) Lawyers?
Lawyers usually act for either the issuer or the underwriters. In some cases, selling shareholders also seek independent legal advice.

The role of the issuer’s counsel includes:

• advising the issuer on:
  • the legal aspects of the transaction;  and
  • the implementation of any pre-initial public offering (IPO) restructuring and management or employee incentive programmes, if any;
• performing legal due diligence and issuing legal and negative assurance opinions;
• assisting the issuer in preparing and verifying the prospectus, investor and analyst presentations;
• leading the prospectus approval process with the Financial Market Authority;
• assisting the issuer in complying with regulatory requirements, including:
  • preliminary filing of the prospectus; and
  • preparation of the listing application; and
• assisting the issuer in negotiating legal agreements relating to the transaction (eg, an engagement letter with underwriting banks and underwriting agreement).

The role of the underwriters’ counsel includes:

• drafting the underwriting agreement, research and publicity guidelines;
• assisting in prospectus drafting and verification;
• negotiating comfort letters with the auditors; and
• preparing disclosure opinions.

(d) Any other relevant advisers?
Other relevant advisers include public relations consultants to advise on the public relations strategy for the transaction, as well as IPO advisers to assist with selecting and negotiating engagement terms with underwriters and other advisers.

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Continuing obligations

Continuing obligations

What continuing obligations apply to issuers of equity securities? What are the penalties for non-compliance?

Periodic financial reporting
Issuers must publish:

• annual financial reports at least four months after the end of each financial year and ensure that the reports remain publicly available for at least 10 years; and
• a semi-annual financial report covering the first six months of the financial year without delay, but at the latest within three months after the end of the relevant reporting period.

Issuers must ensure that the latter report remains available to the public for at least 10 years.

Inside information under the EU Market Abuse Regulation
Issuers must publicly disclose any inside information without delay. However, issuers may delay disclosure under specific circumstances, including where immediate disclosure of inside information is likely to prejudice the issuer’s legitimate interests (eg, in case of financial distress or ongoing negotiations). An issuer may delay disclosure only if this is unlikely to mislead the public and the issuer can ensure confidentiality. An issuer delaying disclosure of inside information must inform the Financial Market Authority (FMA) of such a delay immediately after the information is disclosed to the public. The FMA typically requests the issuer to provide a written explanation of how the conditions for a delay were met.

Listed companies and any person acting on their behalf or on their account must draw up so-called ‘insiders lists’, setting out persons who have or have had access to inside information at a given time.

Major shareholding notifications
A shareholder in an issuer incorporated in Austria must notify the issuer (which in turn notifies the market), FMA and the Vienna Stock Exchange as soon as possible, but no later than within two trading days, of reaching, exceeding or falling below 4%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 75%, 90% or more of the voting rights. This notification obligation also applies to certain derivatives (on a standalone and/or aggregated basis). 

Total voting rights
The issuer must disclose the total number of voting rights attached to shares for each class admitted to trading at the end of every month in which there has been a change.

Managers' transactions under the EU Market Abuse Regulation
Directors, other senior managers and persons closely associated with them (PDMRs) are obliged to notify the issuer (which in turn notifies the market) and the FMA of any transactions conducted on their own account relating to certain financial instruments, including shares in, and bonds issued by, the issuer.

PDMRs must not conduct transactions during any closed period (30 calendar days before the announcement of the annual or interim financial results) or any period in which a trading prohibition applies because of any matter which constitutes inside information in relation to the issuer.

Penalties
Penalties for non-compliance are far-reaching and include:

• significant fines;
• rights of information and on-site investigation;
• temporary suspension of trading;
• revocation of admission to a trading; and
• publication of any penalties imposed, including the name of the entity committing the breach. 

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Market abuse provisions

Rules and restrictions

What rules and restrictions are in place to combat market abuse and insider trading? What are the penalties for breach of these rules?
Market abuse under the EU Market Abuse Regulation consists of:

• insider dealing;
• unlawful disclosure of inside information; and
• market manipulation.

The European Securities and Markets Authority has published further guidance to assist in establishing what types of conduct would be permitted and prohibited as market abuse for the purposes of the regulation.

Penalties for breaches of these rules are severe and range from criminal penalties (imprisonment of up to five years) to hefty administrative fines for individuals (up to €5 million) and legal entities (up to €15 million or 15% of the annual turnover). In addition, the Financial Market Authority can:

• impose public censure;
• impose a temporary or permanent prohibition on an individual holding a certain position in an investment firm; or
• require a company to publish specified information or a specified statement in certain circumstances.

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Tax liabilities

Applicable taxes

What tax liabilities arise in relation to the issue and trade of equity securities in your jurisdiction?

Issuance of shares
The issue of new shares should not lead to any Austrian tax implications.

Sale of existing shares
Capital gains 
For individuals residing in Austria, gains from the sale or other disposal of shares are subject to income (capital gains) tax at a rate of 27.5%.  

The sale of shares by a corporate shareholder residing in Austria is subject to the standard corporate income tax rate of 25%. An exemption from such tax applies to capital gains realised from the sale of shares in a foreign company, provided that the participation in the foreign company exceeds 10% and is held for more than one year (international participation exemption).

For non-Austrian residents, capital gains are subject to taxation in Austria only if the shares sold are attributable to an Austrian permanent establishment or if the selling shareholder has held at least 1% of the share capital in the issuer at any time in the five years preceding the disposal. In this case, there is no tax due in Austria under certain double tax treaties (DTTs) with, for example, Germany and the United Kingdom.

Value added tax
The sale of shares in an Austrian company is exempt from Austrian value added tax.

Dividends
Dividends paid by Austrian subsidiaries to Austrian parent companies are not subject to corporate income tax or withholding tax (eg, if the participation exceeds 10%). Dividends paid to individuals residing in Austria are subject to a 27.5% withholding tax.

Non-resident recipients of dividends from Austrian sources are subject to a 27.5% withholding tax, unless the rate is reduced under a DTT. No withholding tax is imposed where dividends are paid to an EU parent company falling within the scope of the EU Parent-Subsidiary Directive and holding at least 10% in the Austrian dividend paying company for more than one year. For the relief at source, the substance of the EU parent company (eg, business activity, own office space and employees) must be properly documented.

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Law stated date

Correct as of

Please state the date as of which the law stated here is accurate.
28 February 2019.