New regime for share capital increases and issuing convertible bonds for listed companies

On 7 September 2020, the Draft Bill was published in the Official Gazette of the Congress of Deputies, amending the revised text of the Spanish Companies Act (Ley de Sociedades de Capital), approved by Royal Legislative Decree 1/2010, of 2 July, and other financial regulations, on long-term shareholder engagement. The Draft Bill introduces, among others, certain novelties regarding share capital increases and the issuance of convertible bonds for listed companies.

The Draft Bill, which will have to go through the corresponding parliamentary procedure and may undergo modifications during the process, transposes Directive (EU) 2017/828 of the European Parliament and of the Council, of 17 May 2017, amending the Directive 2007/36/EC on long-term shareholder engagement (the "Draft Bill").

The Draft Bill introduces, among other modifications, the simplification of the specific regime for share capital increases and issuance of convertible bonds for listed companies. As set out in the Draft Bill, these modifications' main objective is to simplify the processes to raise capital in the market for listed companies and companies whose shares are traded on multilateral trading facilities. Thus, the applicable regime becomes more agile and, therefore, more competitive.

The main modifications introduced in the Draft Bill for these matters are as follows:

Share capital increase

• The Draft Bill reduces the deadline for exercising pre-emptive subscription rights (from 15 to 10 calendar days). This is intended to reduce the economic and market exposure risk resulting from the period that elapses between the launch and the closing of the corresponding transaction.
• In cases where the pre-emptive subscription right is excluded, the Draft Bill eliminates the requirement to obtain a report from an independent expert separate from the account auditor appointed by the Commercial Registry. The Draft Bill includes the assumption that a value that is less than 10% below the listed price is considered a fair value or market value. Therefore, an independent expert's report will be required when the company intends to issue a value below that or when the company directors prove that the share price is not representative of the fair value.
• For the authorities delegated to the Board of Directors to increase share capital without pre-emptive subscriptions rights, the Draft Bill limits this to a maximum of 25% of the share capital. In reality, this modification will be short-sighted since the Good Governance Code of Listed Companies limits this delegation to 20% of the share capital and it is common practice to follow this recommendation.
• It is expected that the Draft Bill will allow the transfer of the new shares as soon as the public deed of the increase has been granted and before its registration in the Commercial Registry, which must be carried out within the following five days. Moreover, the Draft Bill eliminates the requirement to expressly state in the resolution that the increase may be incomplete in order to be effective. Thus, an increase will be effective unless the resolution establishes the contrary.

Convertible bonds

• In the case of convertible bonds, when these are issued without the pre-emptive subscription right, the Draft Bill eliminates the requirement to obtain a report from an independent expert separate from the account auditor appointed by the Commercial Registry. The Draft Bill also eliminates the requirement for an independent expert's report on the conversion types and bases, whether or not the pre-emptive subscription right is excluded.
• The Draft Bill limits the amount of the underlying shares to 25% of the convertible bonds in those cases in which the bonds are issued by the Board of Directors without the pre-emptive subscription rights.

We will watch out for any changes that may be approved regarding these matters, since the Draft Bill has just started its parliamentary procedure and it is expected to be approved during the last quarter of the year.