The Canadian Securities Administrators (ASC) posted for a 90 day comment period. Proposed Amendments to National Instrument 45-106 Prospectus exemptions and CSA Staff Notice (Regulation 45-106), National Standard 13-101 Electronic document analysis and search system (Regulation 13-101) and National Instrument 45-102 Resale of securities (Regulation 45-102) introduce a new capital raising exemption for reporting issuers that are listed on a Canadian stock exchange (Financing exemption for listed issuers).
The Listed Issuer Funding Exemption would allow reporting issuers whose securities are listed on a Canadian stock exchange to issue publicly traded listed equity securities by way of a new offering document (Offer document) and the issuer’s existing continuous information file in the Electronic Document Analysis and Search System (SEDAR).
The proposed amendments contemplate allowing eligible issuers to increase the greater of $ 5,000,000 or 10% of the market capitalization of the issuer to a maximum of $ 10,000,000 or to a dilution of 100%. during any 12 month period.
Context and rationale
The CSA seek to provide issuers with a more efficient method of accessing capital markets, which requires less time and money than a simplified prospectus. Following responses to CSA consultation paper 51-404 Regulatory burden reduction considerations for reporting issuers other than investment funds, the CSA undertook a research project on potential alternative investment models and data analysis on all prospectuses and private placements made in 2017 by issuers listed on Canadian stock exchanges.
In doing this work, the CSA learned that for small investments (i.e. less than $ 10 million) the current prospectus regime can be onerous, the costs associated with preparing a prospectus can be expensive. be prohibitive and brokers have limited interest in small investments. Therefore, issuers are not as inclined to enter public markets for smaller bids. The CSA have also heard that the costs of completing a short form prospectus are a barrier for issuers wishing to raise less capital. Issuers cited underwriting fees and legal fees as the most significant expenses. The CSA investigation also showed that the costs of a prospectus offering were disproportionate to the amounts raised.
According to the CSA, the proposed exemption from listed issuer funding would be of particular benefit to smaller issuers because it:
- reduce the cost of access to public markets;
- enable small issuers to access public markets and retail investors;
- offer retail investors a greater choice of investments available to the primary public;
- offer investors a greater choice of investments available on the main public markets;
- result in better and more up-to-date market information for smaller issuers who previously only used the private placement system; and
- encourage all issuers who raise less capital to do so by public offering rather than by private placement.
Eligibility criteria and procedure for using the listed issuer funding exemption
Issuers could use the listed issuer funding exemption if they meet the following criteria:
- the issuer must have equity securities listed on a Canadian stock exchange (or convertible securities that are convertible into equity securities);
- the issuer must have been a reporting issuer for at least 12 months prior to the press release;
- the issuer must have active commercial activities;
- the issuer must have filed all timely and periodic disclosure documents;
- the securities that are the subject of the placement are: a) a listed equity security; b) a unit composed of a listed equity security and a warrant; or c) a security convertible into a listed equity security or a unit consisting of a listed equity security and a warrant;
- before soliciting an offer to purchase from a buyer, the issuer issues and files a press release (Press release) which announces the offer and indicates that an acquirer can access the offer document for distribution under the issuer’s profile on SEDAR + (the next new filing system to replace SEDAR) and on the website of the transmitter;
- files a completed offering document on SEDAR + and on the issuer’s website;
- the purchase contract contains the contractual right of rescission; and
- distribution is completed within 45 days of the press release being issued.
The exemption would not be available if the issuer plans to use the proceeds for a significant acquisition or restructuring transaction that would otherwise require the issuer to produce additional financial statements.
The offering document would not be subject to the review or approval of the CSA. The offer document would form part of the issuer’s continuous disclosure record for the purposes of civil liability in the secondary market. In the event of a misrepresentation, buyers under the Listed Issuer Financing Exemption would have the same secondary market civil liability claims as secondary market buyers. Acquirers will have a contractual right of termination against the issuer for 180 days following the distribution. The issuer would be required to certify that the offering document and the issuer’s continuous information for the last 12 months contain information on all material facts concerning the issuer or the securities being distributed and do not contain any misrepresentation.
The content of the proposed form of the offer document would include the following information:
- any new development in the issuer’s business;
- details of the financial situation of the issuer;
- confirmation that the issuer will have sufficient funds to last 12 months after the offer; and
- details of how the proceeds of the current offering will be used and how the proceeds of any previous offers within the past 12 months have been used.
The Offer Document would be filed 3 working days after the date of the Offer Document.
If the placement is made in Quebec, the offer document must be drawn up in French or in English and French.
If a material change occurs after the date of the press release and before the completion of the offering, the issuer must cease the offering until it complies with the material change reporting requirements of NI 51-102. Continuous information obligations, files an amended offering document and issues and files a press release indicating that an amended offering document has been filed.
Conditions of registration
Investment dealers may participate in offers using the Listed Issuer Funding Exemption, but an underwriter does not need to be involved.
Exempt distribution report
The issuer would be required to file a Form 45-106A1 Exempt distribution report within 10 days of distribution, but the issuer would not be required to complete Schedule 1, which provides the purchaser information.
Consequential amendments to Regulation 45-102 and Regulation 13-101
The proposed consequential amendment to NI 45-102 includes the addition of the exemption for funding issuers listed in Schedule E Transactions during the seasonality period, and no hold period would apply.
The offering document would be included in the list of documents to be filed on SEDAR.
The CSA welcomes comments on the proposed listed issuer funding exemption until October 26, 2021. In addition to general comments from market participants, the CSA is seeking comments on a series of specific issues listed in the CSA Notice. These questions include the following topics;
- the size of funding that should be allowed using the listed issuer funding exemption;
- filing requirements after declaration;
- the administrative fees to be paid;
- the type of additional securities that could be issued under the proposed exemption and the manner in which the securities are distributed, including the involvement of dealers;
- whether existing exemptions should be repealed if the exemption relating to the financing of listed issuers is adopted; and
- the proposed liability regime applicable.