Many companies and other entities in the Middle East tap the UK and/or European debt and equity capital markets as part of achieving their corporate funding and broader strategic objectives. While the precise legal and regulatory impact that the UK’s recent decision to leave the European Union (EU), dubbed Brexit, will have on the corporate finance market will depend on a number of factors, most notably the terms of withdrawal that are negotiated with the EU and the consequential impact on applicable legislation.
Regulatory regime and “Passporting”
Many issuers in the Middle East elect to list their debt or equity securities on European exchanges, particularly in London. Currently, the prospectus disclosure, listing and reporting regime is harmonized across the EU, by virtue of the Prospectus, Transparency and Market Abuse Directives, providing many advantages for issuers, most notably allowing for prospectuses to be “passported”.
The prospectus “passporting” regime currently allows issuers to use their prospectus approved by the competent authority in one member state to offer equity or debt securities into another European Economic Area (EEA) member state or to list securities on a regulated market in another EEA member state (or vice versa).
For example, a United Arab Emirates-based issuer that wanted an IPO and listing in London would currently be able to use its Financial Conduct Authority approved prospectus to offer securities in any other member state. As a result of Brexit, in the absence of any analogous mutual recognition system negotiated with the EU, such “passporting” would no longer be available. If no such mutual recognition arrangement is negotiated, different prospectus and listing requirements in the UK from those in the EU would make it difficult and costly for issuers to make public offers of equity and debt securities both in the UK and Europe.
However, the European Commission does have the power to approve a non-EEA prospectus if it meets international standards which are equivalent to EU requirements, and so could make a finding of “equivalence” with respect to any future UK prospectus, albeit this would depend on whether the UK Treasury left in place the existing UK implementing legislation which mirrors the EU regime. This may become problematic over time, however, in case the two sets of rules deviate.
This briefing is from King & Spalding
