Types of equity listing
A firm may benefit from this option when it does not need additional capital at the time of the listing, or when the firm’s owners intend to sell their stakes or a portion thereof only in the medium or long term.
On the other hand, going public on an Exchange undoubtedly creates a challenge that the company has to cope with even in the period preceding raising the actual funds or prior to exit
The listing process comprises the following steps:
1. Decision about listing on the Exchange
The company compares the benefits of a presence on the Exchange (the “profit” of the listing) with the challenges connected with it (primarily the disclosure obligations of its presence on the Exchange, but also one-off and ongoing expenses). If the company considers that the benefits outweigh the costs of listing, it may then decide to apply for a listing on the Exchange.
2. Selection of the contributors
The first and most important task during the preparatory phase is the selection of the contributing players.
Investment firms have a dual role. On the one hand, they carry out advisory services, the preparation of the issue process, and the transaction itself, while on the other hand they offer/sell the securities to the public. In a public offering, they also provide an underwriting guarantee on behalf of the issuer. Fees are generally charges in accordance with these main services. Choosing the right investment firm is of paramount importance since this is the player who will assist the issuer during the entire listing process and who organises this multi-player and complex negotiation. It is reasonable to select the advising bank (or banks) based on a tender, and selecting the other players together with the advising bank is recommended. The issuer has to make preparations even prior to the selection of the advisor and needs to have knowledge of the qualification criteria and the requirements expected during the selection and listing process.
Auditors’ responsibility is far larger and far more complex in the case of a public company and transactions resulting in an increase in the number of shareholders. In addition to the traditional audit services, the auditor prepares a more detailed financial report (the so-called long form report) in the preparation of a listing, and its tasks often include an assessment (but not a certification) of the management's earnings forecasts.
Legal advisors deal with the examination of the legal status, significant contracts and legal relationships of the issuer, as well as with the documentation of shareholder rights (statutes, deed of foundation, shareholders’ agreements etc.). Legal advisors’ main task is to prepare a final report. The role of lawyers is very important in the preparation of a public offering, subscription and underwriting contracts linked to the sale of shares. Given that at this stage of the process the interests of the issuer and of the lead manager may differ, both parties often have their own legal counsel.
Marketing and PR advisors provide assistance with the distribution of shares during the public offering and with marketing the securities to potential buyers. These advisors participate in organising road shows preceding the sale of the shares and in providing logistic services.
If the company intends to make a simple listing on the Exchange, it is not necessary to involve all of the players listed above – the respective regulation does not require the contribution of an advisor in this case. Still, if a package of new or existing shares is to be sold to the public, contribution of an investment firm has to be involved.
3. Preparations for listing on the Exchange
The company shall prepare not only for the listing, but for the maintenance associated with listing on the Exchange. It is necessary that an appropriate level of investor relations and a harmonisation of the internal corporate processes among the different business units are ensured. It is particularly important in the case of a public offering, but also useful in a simple listing, to devise an appropriate marketing campaign at this stage.
4. Preparation of a prospectus.
The most important document of a listing is the so-called prospectus. The prospectus shall contain all relevant information on the economic, market, financial and legal situation of the company (and their likely developments in the future), giving investors the widest possible range of information to ensure proper decision-making. The prospectus shall explicitly contain a statement that the shares are to be listed on an Exchange and shall indicate as a prime risk factor, if no investment firms participated in its compilation. The prospectus prepared for a listing on the BSE shall be submitted for approval to the Central Bank of Hungary, which shall make a decision within 20 working days. Issuing the Prospectus can only be done following the MNB’s approval. As a consequence of Hungary ’s EU membership and on the basis of a “single passport”, the BSE also accepts prospectuses approved by the supervisory authority of any other EU member state. The provisions regarding the contents of the prospectus are determined by the respective EU regulation.
5. Compilation of the listing documentation.
This documentation basically consists of an application, different statements and additional documents (to assist in this, the Exchange has compiled an application form).
6. Official submission of the listing documentation to the Exchange (application for listing)
In order to ensure smoother administration, it is recommended that an unofficial draft version of the application be submitted to the Exchange for a preliminary assessment prior to the official submission of listing documentation. This shall be followed by the official submission of the papers already agreed upon.
7. Public notice of new listing applications
Subsequent to the receipt of the application, the Exchange issues a public notice informing the market of the receipt of the application.
8. Review of the application
The Exchange has 10 Exchange days to review the application and must make a decision within 30 calendar days of its receipt. If necessary, the Exchange may request the issuer to submit any missing documents, and the issuer shall appropriately supplement the documentation within ten working days – in such cases, the deadline for the assessment by the Exchange shall be extended by the period needed to submit the missing documents.
9. Publications on the Exchange website regarding the listing
The documents relevant to investors shall be published at least two Exchange days before the listing.
10. If the documentation is complete and appropriate, a decision on listing shall be made (otherwise, the application shall be rejected).
11. First trading day Trading in the shares officially commences on the Exchange.