Dual listing refers to trading of a company’s shares on two (or more) stock exchanges at the same time. In recent years, companies from around Central & Eastern Europe have shown an increasing interest in the Warsaw Stock Exchange as a market to list their shares.
This has raised the profile of the WSE in the region. There are now dozens of companies listed on the WSE that are based outside Poland, but for some of them the WSE is only one of two, or in some cases several, markets where their shares are traded.
The main reason companies seek a listing on multiple markets is to increase their ability to raise capital—often on a market that is larger than their home market. The legal procedure for listing on additional markets within the EU by a company that is already listed in a member state has also become easier. It should be borne in mind, however, that listing shares on two markets does carry a risk of reduced liquidity of the shares on one of the markets, possible price differences between the markets, and the need for the company to comply with specific legal regulations of both markets while maintaining equal rights for all shareholders (e.g. with respect to voting rights, participation in shareholder meetings, and dividends).
In order for shares of a foreign company to be listed on the WSE, a prospectus must be issued and approved. Steps must also be taken to dematerialise the shares and include them in the international deposit, clearing and settlement system, which is coordinated with the system of Poland’s National Depository for Securities (KDPW). The shares must also meet the conditions for admission to trading on the WSE, particularly with respect to the number of shares in circulation and the value of the issue. The whole process, including the prospectus itself, must reflect the legal conditions under the laws of the country where the company has its registered office (particularly if it is different from the markets where the shares are listed), as well as the laws of the countries where the markets on which the company’s shares will be listed operate—including the country in which the prospectus is to be approved.
Prospectus—approval, notification, content
A basic conditions that must be met by a company (Polish or foreign) for admission of its shares to trading on the Warsaw Stock Exchange is to prepare a prospectus and obtain approval of the prospectus by the relevant capital market regulatory authority.
The selection of the country in which the company intends to seek approval of its prospectus is a key decision affecting the procedure and scheduling of the whole process of listing the shares on the WSE.
A foreign company with its registered office in an EU member state which seeks a listing on the WSE may select from one of two scenarios:
- Preparing the prospectus and obtaining approval in the EU member state where the company has its registered office and then notifying the approved prospectus to Poland
- Preparing the prospectus and obtaining approval by a regulatory authority in an EU member state other than the country where the company has its registered office (if there is an agreement in place between the countries on forwarding of consideration of applications for approval of prospectuses), and then notifying the approved prospectus to Poland.
However, a company from outside the EU which seeks a listing on the WSE may prepare its prospectus and obtain approval in Poland by meeting the conditions provided by Polish law or prepare its prospectus and obtain approval in another EU member state and then notify the approved prospectus to Poland.
Below we limit our discussion to issues of particular relevance when the prospectus has already been approved in another EU member state and the company is considering a dual listing, including listing on the WSE, possibly combined with a public offering of shares in Poland.
One of the factors influencing the choice of the country where the prospectus will be approved is the language of the prospectus. If the prospectus, including the financial portion, is prepared in English, this excludes the necessity of translating the entire prospectus into Polish. In such case, a Polish translation of a summary of the prospectus is all that is required. This is one justification for companies to select a jurisdiction where prospectuses may be submitted and approved in English.
The prospectus of a company that is considering listing its shares on the WSE should include Polish aspects, particularly addressing the conditions for listing on the WSE and for entering the shares in the relevant securities depository system in a manner that enables KDPW to register and settle transactions occurring on the WSE. If the issuer is considering a public offering of shares in Poland, it is particularly important to identify risks relevant to the conditions and procedures for conducting an offering in Poland with respect to cancellation or suspension of the offering as well as rules for distribution and allocation of the shares.
The manner in which the prospectus and the translation of the summary are published is important from an organisational point of view. The Polish regulations provide for several methods of publishing the prospectus. The methods that are optimal for foreign companies are:
- Publication in electronic form on the company’s website and simultaneously on the website of the financial institution offering the shares
- Publication in electronic form on the WSE website
- Publication in electronic form on the website of the regulatory authority in the issuer’s home jurisdiction.
The Polish Financial Supervision Authority (KNF) must be notified in advance of the method of publication of the prospectus. The selected method will also apply when publishing annexes to the publication or communiqués.
Dual listing with public offering on WSE
In order to properly prepare a public offering of the shares of a foreign company on the WSE, it is important to determine the time at which the rights to newly issued shares arise, and particularly whether registration of the shares in the relevant commercial register is required in order for rights to the shares to be created. This is because trading of the shares on the WSE may only occur when the shares factually and legally exist. In the Polish legal system, creation of shares requires registration of the share capital increase in the court register. Not all jurisdictions have the same rule, and thus determining the actions and documents confirming the existence of the share rights is crucial from the point of view of the procedure for admitting the shares to trading on the WSE.
It is also important to ensure that the resolutions on issuance of the foreign company’s shares contain the key elements enabling the WSE and KDPW to take a decision to admit the shares to trading and to dematerialise the shares.
Dual listing of shares on the WSE and another securities exchange thus requires advance coordination of the actions to be taken for admission of the shares to trading on both markets. For this purpose, it is recommended to begin the process of obtaining the required consents from the WSE and KDPW as early as possible.
Trading in shares on the WSE is conducted in dematerialised form, meaning that the shares are not in the form of a document and ownership of the shares is confirmed by entries in the securities accounts of the shareholders maintained by brokerages and trust banks.
To enable trading in its shares on the WSE, a foreign company must conclude relevant agreements to assure a dematerialised system of trading and settlement of transactions on both markets at the same time, including the possibility for investors to transfer the shares between the two markets. KDPW cooperates in this respect with the company’s home depository and other foreign deposit, clearing and settlement institutions in order to assure smooth settlement of transactions and payment of dividends regardless of the market on which the shares were acquired.
In the case of a foreign issuer from the EU, the range of information and the dates for releasing it in Poland are generally defined by the regulations of the EU member state where the issuer has its registered office. A foreign issuer from outside the EU is subject to the requirements of the EU member state where it will conduct the public offering, or the country in which the shares will be admitted to trading on a regulated market, at the election of the issuer or the underwriter.
Issuer’s election of regulatory authority with respect to acquisition of major stakes
Because a foreign company whose shares are admitted to trading on the WSE may be subject to various legal regimes with respect to the acquisition of significant stakes of shares and in some instances has a right to designate the applicable regulatory authority, the appropriate determinations on this issue need to be made as part of the process of preparing for the dual listing. Information on the election of a regulatory authority with respect to the acquisition of significant stakes of shares may be announced to investors in the prospectus.
Assessment of the market benefits of listing the company’s shares on multiple markets and the opportunities for raising capital in this manner is a separate issue, but the legal framework for dual listings within the EU provides sufficient grounds for conducting this process effectively and efficiently in Poland.
Danuta Pajewska, Marcin Pietkiewicz, Capital Markets and Financial Institutions Practice, Wardyński & Partners