Spotlight: the IPO process in Luxembourg

All questions

Introduction

Key international players consider Luxembourg one of the most attractive business centres in the world. With approximately 120 registered banking institutions, a successful investment fund industry with about 3,400 funds managing net assets of nearly €5.03 billion and a dynamic insurance sector, Luxembourg offers a full range of diversified and innovative financial services.²

The main advantages of Luxembourg include:

1. its continued affirmation of an AAA rating for long-term and short-term sovereign credit;
2. its sound public finances;
3. its rapid regulatory process;
4. the business-friendly attitude of the authorities;
5. its large network of double taxation treaties;
6. its efficient immigration procedures;
7. its recognition as an innovative hub for fintech; and
8. its state-of-the-art company laws.

To maintain the attractiveness of Luxembourg in a context where the regulatory framework becomes increasingly harmonised, there are signals that the Luxembourg authorities want to differentiate themselves from their foreign counterparts in terms of quality of service, responsiveness and approachability.

The above are all factors to consider when selecting the optimal location to establish an initial public offering (IPO) vehicle. Consequently, Luxembourg remains a popular jurisdiction for initiating IPO transactions.

Governing rules

i Main stock exchanges

The Luxembourg Stock Exchange (LuxSE) operates two markets: an EU-regulated market named Bourse de Luxembourg (BDL) and an exchange-regulated market named Euro MTF, which does not qualify as a regulated market within the meaning of Directive 2014/65/EU, but rather as a multilateral trading facility (MTF).

These two markets offer the possibility to admit securities to two specific subsegments:

1. the Luxembourg Green Exchange (LGX), a dedicated platform for sustainable securities and issuers contributing to financing a low-carbon and more inclusive economy;³ and
2. the professional segments, for issuers targeting professional investors only.⁴

In addition, the LuxSE offers the possibility for issuers to have securities admitted on its official list without being admitted to trading on any market through the creation of a dedicated section of the LuxSE’s official list, namely the LuxSE Securities Official List (the LuxSE SOL). This allows issuers to have their securities appear on a widely recognised official list, without the application of a number of capital markets-related EU and national laws that solely focus on securities being admitted to trading.

Issuers whose shares have been admitted to trading on the BDL are subject to European regulations applicable to financial instruments, including Regulation (EU) 2017/1129 of the European Parliament and the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the Prospectus Regulation).

Among other exemptions, the Prospectus Regulation provides for an exemption from the obligation to publish a prospectus for the admission to trading on a regulated market of ‘securities already admitted to trading on the same regulated market, provided that they represent, over a period of 12 months, less than 20 per cent of the number of securities already admitted to trading on the same regulated market’.⁵

Owing to the European passport provided under the Prospectus Regulation, a prospectus may be used for admission to trading on a regulated market in another Member State in the European Economic Area (EEA), without further review or the imposition of further disclosure requirements (except for summary translations, where applicable) by the relevant authority of that Member State. Therefore, this minimises regulatory arbitrage and provides a single market framework.

Prospectuses for the public offering of equity securities within the EEA or admission to trading on a regulated market within the EEA (including the BDL) issued by issuers incorporated in Luxembourg must be approved by the Luxembourg competent authority, the Commission for the Supervision of the Financial Sector (CSSF) and, where applicable, subsequently passported into the relevant host Member States in which an admission to trading on a regulated market or a public offering takes place.

The Euro MTF has been a fast-growing market since its creation in 2005. It was created by the LuxSE to provide issuers with an alternative to the EU-regulated market. The LuxSE is responsible for the review and approval of prospectuses for admission to trading on the Euro MTF.

The Euro MTF is not an EU-regulated market and is thus outside the scope of the EU Prospectus Regulation and Directive 2004/109/EC (the Transparency Directive); thus, the reporting and transparency requirements are less stringent. It is suitable, for example, for those not interested in the European passport or whose investor base does not necessarily require listing on a regulated market but wants a European admission to trading.

As at May 2023,⁶ some 40,120 securities were admitted to trading on both markets, 59 per cent of which were admitted to trading on the BDL and 41 per cent of which were admitted to trading on the Euro MTF, which makes the Euro MTF the second-largest MTF of its kind⁷ in Europe. These numbers include 15,489 bonds and 21,011 structured investments.

Investment funds form another important segment, with 3,474 share classes listed as at 31 May 2023.⁸

With 106 listed global depositary receipts (GDRs), the LuxSE remains an important listing venue outside the Anglo-Saxon sphere. In terms of the origin of the underlying equity issuers for those depositary receipts, as May 2023, Taiwan ranks first with 50 GDRs (47 per cent of GDRs listed on the LuxSE),⁹ followed by India (30 per cent).

GDRs have been present on the LuxSE for some time: the first listing of a GDR took place in 1990.¹⁰ GDRs provide the relevant underlying company with access to international capital markets. Emerging countries looking for international investors see the GDR as a unique solution in terms of flexibility and market exposure.¹¹

As far as the equity market is concerned, the LuxSE has more than 26 domestic issuers with equity listed on one of the LuxSE’s markets. However, the trading activity overall is rather limited.

Among those domestic issuers, the majority of Luxembourg IPO vehicles serve as holding companies for operational groups operating in other countries (especially Germany). The reasons for using a Luxembourg IPO vehicle (rather than a German vehicle) are diverse: often private equity houses that intend to float one of their investments have already used Luxembourg vehicles to structure their investment, and one of the existing top companies is then converted into an IPO vehicle.

In other circumstances, Luxembourg vehicles are preferred to other vehicles for corporate governance reasons (increased flexibility of Luxembourg company law compared with other jurisdictions), and issuers are also keen on dealing with the CSSF to have their prospectuses approved rather than another authority (bearing in mind that the CSSF is one of the most popular competent authorities under the Prospectus Regulation with about 1,300 documents approved yearly).¹²

ii Overview of listing requirementsAdmission to trading and admission to official list

There is a distinction between the requirements for an admission to trading of shares in an issuer to BDL and the Euro MTF. Although a prospectus is required in both cases, the underlying regulatory regime differs significantly.

For admission to trading on the Euro MTF, a prospectus drawn up usually in accordance with the rules and regulations of the LuxSE (the ROI) and approved by the LuxSE must be published. In contrast, for admission to the BDL, a prospectus drawn up in accordance with the Prospectus Regulation is required (the disclosure requirements regarding equity issuers are generally perceived to be more demanding than those for the Euro MTF).¹³

The Prospectus Regulation-compliant prospectus is approved by the CSSF if the issuer is a Luxembourg company (and for third-country issuers if certain conditions are met), whereas an issuer incorporated in a Member State other than Luxembourg would have the prospectus approved in its jurisdiction of incorporation (the home Member State) and then passported into Luxembourg via the EU passport for an admission to trading on the BDL.

In principle, admission to listing on the LuxSE’s official list goes hand in hand with the admission to trading on one of the LuxSE’s markets.¹⁴ However, on request of the issuer or the person seeking the admission to trading, the securities specified in an application form may not be admitted to the official list.¹⁵ As already mentioned in Section II.i, it is also possible, subject to the conditions set out in the LuxSE’s Rulebook – Securities Official List (the SOL Rulebook), to have securities admitted to listing on the LuxSE SOL without the securities being admitted to trading on the BDL or the Euro MTF.

Applicable listing requirements

The requirements for listing securities, which apply equally to securities on the BDL and the Euro MTF, where they are also listed on the official list, are set out in the Grand-ducal Regulation of 13 July 2007, as amended, relating to the holding of an official list for financial instruments, as amended (the Listing Regulation). The requirements are outlined below.

The requirements for listing securities on the LuxSE SOL (in addition to the application for listings itself, which includes the obligation to provide an ‘information notice’) are set out in the SOL Rulebook and are substantially identical to those highlighted below.

Compliance with applicable law

The issuer must conform to the corporate laws and regulations, and its articles, to which it is subject.¹⁶

Minimum number of investors

A sufficient distribution of shares to the public of one or more Member States must be achieved at the latest at the time of the admission to the official list.¹⁷ A sufficient distribution is deemed to have been achieved when either the relevant shares have been distributed to the public up to at least 25 per cent of the subscribed capital represented by this category of shares, or when, owing to the high number of shares of the same category and the extent of their distribution to the public, the proper operation of the market is assured with a lower percentage.

This condition does not apply where the securities are to be distributed through the BDL or the Euro MTF; although, in that case, the admission to the official list may only be granted if the LuxSE believes that sufficient distribution through the BDL or the Euro MTF will take place within a short time frame. The Listing Regulation also specifies that where the shares are admitted to the official list of one or more third countries, the LuxSE may, by derogation, provide for their admission to the official list of the LuxSE when sufficient distribution to the public has been achieved in the third country or countries where they are listed.

A certain level of discretion is left with the LuxSE to assess whether sufficient distribution is deemed achieved. To enable the LuxSE to form an opinion, the relevant issuer or person seeking admission will have to respond to a questionnaire issued by the LuxSE in which the issuer will specify its expectations regarding distribution. There is no minimum number of investors per se, and the LuxSE will analyse the overall context.

The holding by a single investor, even if accompanied by a limited number of ‘straw man investors’ each holding an insignificant portion of the overall equity, is considered insufficient. However, a distribution of the shares among a limited number of investors, each holding a reasonable stake in the issuer, would usually be satisfactory to the LuxSE; although, as mentioned, there is some discretion on the part of the LuxSE in this respect.

There are no free float conditions for shares admitted to the LuxSE SOL.¹⁸

Minimum market value of share issuer

The minimum share capital, at the time of listing, must be at least €1 million or the equivalent value in any other currency, unless the LuxSE is otherwise satisfied that there will be an adequate market for the shares concerned.¹⁹

Negotiability of securities

Shares must be freely transferable. Selling restrictions or lock-ups (e.g., post-IPO management lock-ups) are accepted.²⁰

Number of securities concerned

The admission application must, in principle, cover all shares of the same category issued.²¹ The only exception to this rule (which does not apply to the LuxSE SOL) relates to large blocks of shares that are designed to maintain control over the issuer, or that are not tradable during a determined period in accordance with agreements, provided that the public is informed of these situations and that there is no risk of these situations causing any prejudice to the holders of the shares for which admission to the official list is being applied.

Minimum prior existence

The issuer must have published or filed, in accordance with national law, its annual accounts for the three financial years preceding the application for listing.²² A derogation is possible²³ and, if obtained, the LuxSE imposes the obligation on the issuer to publish quarterly reports over a certain period post-listing.²⁴

iii Overview of law and regulationsPublic offer

As set out in the Prospectus Regulation and the Luxembourg act of 16 July 2019 on prospectuses for securities (the Prospectus Act), no offer of transferable securities may be made to the public in Luxembourg without the prior publication of a prospectus approved by the CSSF or a competent foreign authority.²⁵

Depending on the type of offer and the securities offered, different regimes apply. Part II of the Prospectus Act implements the provisions of the Prospectus Regulation into Luxembourg law and refers to the Prospectus Regulation for the general legal framework of the prospectuses, whereas Part III, Chapter 1, of the Prospectus Act applies to alleviated prospectuses, which must be published for public offers of securities not covered by the Prospectus Regulation. The main difference between the two regimes is that only public offer prospectuses approved under the Prospectus Regulation can benefit from the European passport for securities – alleviated offer prospectuses can be used for public offers in Luxembourg only.

Generally, a prospectus or an alleviated prospectus must contain all the information that enables prospective investors to make an informed assessment of the contemplated investment. The content and format of a Prospectus Regulation compliant prospectus aredetermined by Commission Delegated Regulation (EU) 2019/980 (Regulation 2019/980).²⁶ Alleviated prospectuses are either drafted based on Regulation 2019/980 or on the ROI.

Certain offers are exempt from the obligation to publish a prospectus or alleviated prospectus.²⁷ The obligation to publish a prospectus or alleviated prospectus also does not apply to offers to the public of certain types of securities (such as units issued by collective investment undertakings other than the closed-end type).

Admission to trading

The admission to trading of securities requires the prior publication of a prospectus or alleviated prospectus in accordance with the Prospectus Regulation or the Prospectus Act. The regime applicable for admission to trading varies, to a great extent, according to the market on and the type of securities for which the admission to trading is sought, and will be governed by the Prospectus Regulation, or by Part III, Chapter 2 or Part IV of the Prospectus Act. Only prospectuses approved under the Prospectus Regulation can benefit from the European passport. The competent authority for the approval of a Prospectus Regulation-compliant listing prospectus is the CSSF, whereas the LuxSE governs the approval of alleviated prospectuses under Part III of the Prospectus Act and Euro MTF listing prospectuses under Part IV of the Prospectus Act.

All of the regimes provide for exemptions from the obligation to publish a prospectus for admission to trading on either market (e.g., the ‘less than 20 per cent limit’ already mentioned in Section II.i or, in certain circumstances, securities offered, allotted or to be allotted to existing or former directors or employees by their employers whose securities are already admitted to trading on a regulated market or by an affiliated undertaking).

Market abuse

Regulation (EU) No. 596/2014 on market abuse, as amended (the Market Abuse Regulation) applies across the European Union. Compared with other European directives and regulations relevant to capital markets, the Market Abuse Regulation has an expanded scope as it directly applies to financial instruments on a wider range of trading venues, including MTFs, such as the Euro MTF. This means that issuers with shares on the Euro MTF (and their investors) will also have to comply with the ongoing obligations stemming from the Market Abuse Regulation.

The Market Abuse Regulation prohibits insider dealing and market manipulation (although a number of safe harbours, which are relevant for IPOs, such as the safe harbour for stabilisation transactions, are also provided) and imposes a number of continuing obligations on issuers with equity admitted to trading on a regulated market or an MTF.

The Market Abuse Regulation does not apply in respect of securities only listed on the LuxSE SOL.

Corporate and governance aspects

Where the IPO is made through a Luxembourg-incorporated issuer, the flexible corporate framework is often a driver for selecting the home jurisdiction of the IPO vehicle.

Potential IPO vehicles – corporate form

The most common form for structuring an IPO via a Luxembourg issuer is the Luxembourg public limited liability company (SA). An alternative is the Luxembourg partnership limited by shares with a double shareholder (general partner and limited partner) structure (SCA).

In contrast with an SA, control of the SCA may be structured in a way that control does not necessarily depend on the relative size of shareholdings.²⁸ This is the case if a holder of the unlimited partner shares is appointed as a manager who can only be removed with the consent of the unlimited partner shares. There must be at least one shareholder with unlimited liability who will carry out the management of the SCA.²⁹ Typically, only the limited partner shares are offered to investors or admitted to trading.

Bearer shares versus dematerialised shares and shares in registered form

Historically, IPOs through Luxembourg companies were structured via the issuance of shares in global bearer form: one or more global share certificates were issued by the issuer that represent the entire issuance of the listed shares, which were subsequently lodged with a depositary for entry into the relevant clearing systems.

The Luxembourg act of 28 July 2014 on the immobilisation of bearer shares and units (the Immobilisation Act 2014), has been a game changer in this regard. The law imposes the appointment of a Luxembourg depositary that meets the requirements of the Immobilisation Act 2014, with whom all bearer shares must be deposited.³⁰

The appointment of such a Luxembourg depositary can be problematic, as the deposit of the global bearer share for a large number of IPOs is usually made with a depositary that is linked to the relevant clearing system of the market on which the shares are traded. As previously mentioned, that relevant market is often outside Luxembourg (e.g., where listing of the shares takes place in Germany, there is usually a deposit in Germany for a clearing there).

Therefore, most Luxembourg issuers are now structuring their IPOs through the issuance of dematerialised shares governed by the Luxembourg act of 6 April 2013 on dematerialised securities (the Dematerialisation Act 2013). According to the Dematerialisation Act 2013, the shares must be registered in the issuance account for the Luxembourg issuer’s shares of the same class held with a ‘liquidation body’,³¹ which must be a securities settlement system.

Typically, LuxCSD SA, a securities settlement system created in 2010 and jointly owned by the Luxembourg Central Bank and Clearstream International, is appointed as the liquidation body for Luxembourg IPO issuers. A Luxembourg principal agent is typically appointed as the ‘LuxCSD principal agent’, who liaises with LuxCSD.

The single securities issuance account held with the liquidation body in which the dematerialised shares are recorded indicates the identification elements of those dematerialised shares, the quantity issued and any subsequent changes to the issued amount. In accordance with the Dematerialisation Act 2013, dematerialised shares are only represented by a record in a securities account. Ownership of the shares is established by such registration in a securities account.

Shares in registered form can also be issued by a Luxembourg company. According to Luxembourg company law, the issuer must hold at its registered office a register in which the holders of shares are registered. In the case of shares cleared through clearing systems, the relevant clearing system (or person acting for the account of the clearing system) is entered into the register.

Flexible corporate law – non-voting shares, nominal value and authorised capital

Both SAs and SCAs may issue non-voting shares. According to the Luxembourg act dated 10 August 1915 on commercial companies, as amended (the Companies Act 1915), which has been amended to provide further flexibility for the issuance of non-voting shares by SAs,³² the maximum number of non-voting shares is to be determined by the general shareholders’ meeting, and the financial rights attached to the non-voting shares on a distribution (dividend, repayment or liquidation) are determined in the articles of association of the Luxembourg issuer.

Non-voting shares retain voting rights in relation to any resolution:

1. that may result in an amendment to the rights attached to the non-voting shares;
2. on the reduction of the share capital; or
3. on the early dissolution of the company.

Holders of non-voting shares are entitled to receive all convening notices and reports sent to the voting shareholders.

Luxembourg law allows the issuance of shares with or without nominal value. There is no maximum or minimum nominal value, and it is possible to issue various share classes with a different nominal value and proportionate voting rights.

The articles of association of the IPO vehicle can provide ‘authorised capital’, which is limited to five years but can be renewed by the shareholders. There is no restriction on the size of this authorised capital (versus the actual share capital). What is more, pre-emption rights can be disapplied in respect of share issues under the authorised capital.

Beneficiary shares

The Companies Act 1915 provides for the possibility to issue beneficiary shares, which are of a sui generis nature and are, strictly legally, neither outright equity nor outright debt. According to Article 430-1 of the Companies Act 1915: ‘Shares that do not represent the share capital referenced to by this law as “beneficiary shares” may be created. The articles of association shall specify the rights attached thereto.’

Although the rules applicable to shares are determined in detail in the Companies Act 1915, beneficiary shares are not otherwise regulated by it. This leaves room for flexibility in terms of structuring. The articles of association of the relevant Luxembourg issuer can thus provide any allocation of, for instance, the economic rights in respect of these instruments and also permit flexibility for the organisation of voting power.

Corporate governance

Luxembourg company law permits both one-tier (board of directors) or two-tier (management board and supervisory board) systems for SAs. This flexibility allows adaptation to local market needs. For example, IPOs through Luxembourg holding companies that are to be admitted to trading on a German regulated market tend to make use of the two-tier system, which is more common in the German market.

In a one-tier structure, the board of directors is vested with the broadest powers to conduct the SA’s business and to represent it, with the exception of those powers expressly reserved by the Companies Act 1915 or the articles of association for the general shareholders’ meeting.

The same principle applies to the management board in a two-tier structure, except that the management board’s powers are also subject to the powers expressly reserved for the supervisory board. The supervisory board supervises the management board and, where applicable, grants authorisations to it. However, it cannot interfere in the management of the SA. Members of the management board cannot simultaneously be members of the supervisory board.

In an SCA, the managers are vested with the broadest powers to conduct the SCA’s business and to represent it, with the exception of those powers expressly reserved by the Companies Act 1915 or the articles of association for the general shareholders’ meeting.

The Ten Principles of Corporate Governance issued by the LuxSE

The Ten Principles of Corporate Governance issued by the LuxSE (fourth edition – revised version of December 2017) (the Ten Principles) generally apply to all companies incorporated in Luxembourg where their shares are listed on a regulated market operated by the LuxSE, namely the BDL. The Ten Principles comprise three types of rules: the compulsory principles themselves (comply), the recommendations (comply or explain) and the lines of conduct, which are indicative only and not compulsory.

Even in a constellation where no national set of corporate governance is mandatory, the market will expect an issuer of listed shares to submit to a set of corporate governance principles. The Ten Principles may also be used as a reference framework for other companies for whom the Ten Principles are not mandatory – for example, in respect of any company incorporated in Luxembourg or outside Luxembourg, or any company incorporated in Luxembourg with shares admitted to a foreign regulated market.

The offering process

i General overview of the IPO processOffering process

An IPO is typically organised as a public offering of shares to retail investors in one or more public offer jurisdictions and institutional investors located in those public offer jurisdictions or elsewhere.

The offer process is launched after approval and publication of the public offer prospectus. Typically, the maximum number of shares to be offered and the price range (or a maximum price) are set forth in the prospectus, with the actual number of shares allotted to investors and the final offer price being published at the end of the offering process,³³ once pricing and allotment have been completed at the end of the book-building process (which serves to evaluate the size and price sensitivity of demand from investors).

Typically, an IPO will provide for the issuance of new shares to investors (primary) and the offer for sale of existing shares (held by one or more selling shareholders agreeing to participate in the IPO) to investors (secondary). IPOs with exclusively a primary issuance are also possible and are favoured where the intention is for the company to obtain a maximum of fresh capital to invest. A large secondary offer is customary where one or more selling shareholders (typically a private equity fund) would like to start taking profits from their investment and start divesting.

For marketing purposes, the issuer and the relevant financial institution or institutions appointed by the issuer will advertise the offering through, inter alia, investor roadshows, newspaper advertisements, ad hoc meetings and discussions with investors. Advertisements in relation to the IPO must meet certain standards under the Prospectus Regulation: they must be clearly recognisable as such and must state that a prospectus has been or will be published and where investors are or will be able to obtain it. The information in the advertisements must not be inaccurate or misleading, and must be consistent with the information contained in the prospectus. However, prior to the publication of the public offer prospectus, no communication must be made by any party that would constitute a public offering, as chronologically the prospectus must be approved and published ahead of the beginning of the public offer.³⁴

In the context of a preparation of an offer by an issuer that already has listed securities, inside information must always be treated properly. This has an impact, for example, on the manner in which potential investors are approached (on a confidential basis) prior to any announcement of the transaction to gauge their interest – the provisions regarding ‘market soundings’ set out in the Market Abuse Regulation must be taken into consideration (e.g., the requirement for the market participant to obtain the consent of the person receiving the market sounding to receive inside information).

The application for admission to trading on the LuxSE or elsewhere is officially submitted during the offering process (although the exchange will, in practice, have been approached informally beforehand). According to the ROI, the decision for admission on the LuxSE takes place within a time frame of a maximum of 10 working days of the receipt of the request. In practice, approvals are obtained sooner.

Provided that the approved listing prospectus is available and up to date, the LuxSE’s role is limited to verifying that the applicant’s submission forms (which contain, among others, information and representations in connection with KYC, and undertakings in respect of ongoing obligations) are complete and in order.

Time frame

The overall time frame required for an IPO is dependent on a large number of factors. This makes it difficult to predict the exact time required for a specific transaction. Initial due diligence within the issuer’s group (to enable appropriate prospectus disclosure) is often started long in advance of the entire process. The prospectus drafting process (including the setting up of physical drafting sessions involving all relevant parties) is generally a time-consuming exercise as all parties must be comfortable with its content.

For the review of the prospectus by the CSSF (if competent), the Prospectus Regulation gives the CSSF up to 20 working days to provide comments.³⁵ In practice, the CSSF reverts with preliminary comments within only a few working days, and the detailed set of comments is usually available in less than 20 working days. Subsequent reviews tend to be faster. Furthermore, the CSSF can be approached at the start of the IPO process to discuss a bespoke timetable for a specific transaction.

Where the prospectus is approved by the LuxSE (for an alleviated listing prospectus or an admission to trading on the Euro MTF), the review time is generally quicker: the LuxSE has indicated that it will make sure it can revert with comments within three working days.

The length of the public offer process itself can be fixed as deemed appropriate by the relevant financial institutions. In the case of an IPO of a class of shares that is to be admitted to trading for the first time, the prospectus must be available for at least six working days before the end of the offer.³⁶

Parties involved

Typically, an issuer contemplating an IPO is advised by a financial institution, who would in most cases assume the role of lead manager, book runner or arranger in connection with the IPO.

Legal advisers are in charge of the drafting of the prospectus and the underwriting or placement agreement (see ‘Required documentation’), and they advise on the corporate (and, if the issuer already has listed securities, the regulatory) steps to be taken throughout the entire process. They also coordinate between all participants and usually liaise with the competent authority and the stock exchange in respect of the prospectus approval process and the listing application. Typically, each party (issuer and accompanying bank) appoints separate counsel.

Listing agents can be appointed to coordinate with the stock exchange. Any person (e.g., lawyer) can act as a listing agent for the LuxSE.

A depositary and paying agent is appointed in view of lodging the shares with the relevant clearing system and to ensure the financial servicing of the shares. The agent acts as the LuxCSD principal agent if clearing is made via the LuxCSD. A clearing is not compulsory in the case of an admission to the LuxSE SOL only.

Auditors must review the financials included or referred to in the prospectus and give assurance that they are comfortable with the information (typically, a comfort letter is issued).

Depending on the context, specific experts (in particular in case of issues by ‘specialist issuers’ referred to in Section III.ii) and translators may also be involved in the process.

Required documentation

As outlined above, a prospectus is required for a public offering and admission to trading of shares. Responsibility for the prospectus lies with the issuer, the offeror or the person asking for admission to trading on a regulated market. The responsible persons must be clearly identified in the prospectus. In Luxembourg, there is no rule or case law according to which prospectus liability would, in the case of a pure secondary offering, have to be shifted entirely to the selling shareholders.

An underwriting or placement agreement is generally entered into with the financial institutions assisting the issuer in the IPOs and relevant selling shareholders (if applicable). These agreements are normally drafted according to international market standards, and comprise a detailed set of representations and warranties to be given by the issuer and the selling shareholders.

In view of guiding the transaction parties regarding the type of information on the project that can be discussed outside the working group, which remains confidential, a thorough set of ‘publicity guidelines’ is usually set up at the beginning of the process. These guidelines also contain the appropriate disclaimers for any communication prior to and during the launch of the IPO. Research report guidelines are often established in view of specifying the interaction with persons establishing reports on the issuer.

ii Pitfalls and considerations

Compared with those targeting the Euro MTF, issuers willing to access the BDL (assuming the admission to trading and listing is not associated with any public offer) will face higher regulatory hurdles. IPOs involving an admission to trading on the regulated market are thus more time-intensive and complex.

Among the initial challenges, the prospectus approval process is certainly one of the biggest. Equity prospectuses will, except in certain specific circumstances,³⁷ have to follow the most demanding annexes in Regulation 2019/980 (in particular Annex 1), and for a number of issuers – specifically those that have undergone a restructuring or made significant acquisitions – additional hurdles often lie with the complex financial history of the underlying group and requirements to draw up audited pro forma financial statements to satisfy the requirements of Annex 20 of Regulation 2019/980.³⁸

Furthermore, certain ‘specialist issuers’ (active in the real estate market or in the minerals sector or start-ups, among others) may face additional hurdles owing to supplementary information required at European level (such as the need to have specialist reports).³⁹

The guidelines of the European Securities and Markets Authority (ESMA) on alternative performance measures,⁴⁰ which aim at creating further transparency and usefulness of alternative performance measures included or referred to in prospectuses, and improving the comparability, reliability and comprehensibility of alternative performance measures, are often seen by issuers as additional challenges for prospectus approvals.

iii Considerations for foreign issuers

Foreign issuers are, prima facie, subject to substantially the same requirements as Luxembourg issuers. A particular challenge for foreign issuers, especially those originating from a country outside the EEA, can be the requirement regarding financial statements.

While at the level of the BDL, European legislation will dictate International Financial Reporting Standards (IFRS) (as adopted by the European Union) (EU IFRS) or deemed equivalent standards, the Euro MTF is more flexible in this regard. Generally accepted accounting principles (GAAP) of third countries are generally accepted, subject, where necessary, to the drawing up of statements of main differences between the relevant third-country GAAP and IFRS.

iv FastLane

Aside from the existing exemptions in place, the LuxSE introduced, in October 2022, a simplified admission process called FastLane. It essentially allows certain eligible issuers of non-equity securities to draw up an admission document that simply contains the terms and conditions of the securities for which admission on the Euro MTF is sought, and which need not be approved by the LuxSE.

Post-ipo requirements

Upon admission of the shares to either the BDL or the Euro MTF, a number of ongoing disclosure and notification requirements apply.⁴¹ As the Euro MTF is not a regulated market subject to relevant EU directives, the ongoing obligations will mainly be driven by Luxembourg rules and will at times be less rigorous than those applicable to the BDL.

However, contrary to the previous market abuse regime, the Market Abuse Regulation has an extended scope of application fully comprising, since June 2016, MTFs, including the Euro MTF. Given that there is no admission to trading on any market or trading venue, the Market Abuse Regulation does not extend to securities listed solely on the LuxSE SOL.

i LuxSE-regulated market

An issuer whose shares are admitted to trading on the BDL and for whom Luxembourg is the elected home Member State,⁴² will be subject to one-off, ongoing and ad hoc requirements. Those requirements comprise the obligation to publish (one-off) the total number of voting rights and capital to allow shareholders to make relevant major holding notifications to the issuer (and the CSSF); in exceptional circumstances, dual-listed issuers determine the supervisory authority competent to supervise any bid under Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids (the Takeover Directive) by notifying those regulated markets and their supervisory authorities on the first day of trading.

On an ongoing basis, the issuer must publish annual and half-yearly financial reports meeting the requirements of the Luxembourg act of 11 January 2008 on transparency requirements for issuers of securities, as amended (the Transparency Act 2008), implementing the Transparency Directive on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, as amended; the annual financial reports must include consolidated financials in accordance with EU IFRS in addition to the stand-alone financials.

On an ad hoc basis, the issuer must publish, inter alia:

1. ‘inside information’ that directly relates to the issuer and to its financial instruments;
2. disclosures in connection with managers’ transactions in the securities of the issuer, and major holding disclosures received from shareholders if relevant thresholds have been reached or crossed (5, 10, 15, 20, 25, 33 1/3, 50 and 66 2/3 per cent of the total voting rights);
3. any changes to the issuer’s total number of voting rights and capital; and
4. holdings of treasury shares if relevant thresholds have been reached or crossed (5 and 10 per cent of the total voting rights).

Furthermore, the issuer will have to make publications in connection with any voluntary or mandatory takeover bid for its shares in accordance with the applicable law implementing the Takeover Directive; the issuer will also have to make publications in relation with any squeeze-out or sell-out transactions under the Luxembourg act of 21 July 2012 on mandatory squeeze-out and sell-out of securities of companies currently admitted or previously admitted to trading on a regulated market or having been offered to the public (the Squeeze-out and Sell-out Act) (although this is extremely rare, as the act only becomes relevant where the issuer in question has a majority shareholder holding, alone or with persons acting in concert with it, directly or indirectly, at least 95 per cent of the issuer’s capital carrying voting rights and 95 per cent of its voting rights).

In addition to the aforementioned publications, the ROI imposes notification (as opposed to publication) obligations in connection with certain corporate and securities events (including amendments of rights attached to the shares and announcements of distributions), some of which ahead of the event. The LuxSE enjoys quite broad powers in that it may ask issuers to communicate to the LuxSE all information that the LuxSE deems useful for the protection of investors or for the due and proper operation of the market. The LuxSE may even request the publication of relevant information and, if the issuer does not comply with the request, proceed itself with the publication at the issuer’s cost.⁴³

Furthermore, the issuer will have to hold and update insider lists and treat insiders and inside information in accordance with the Market Abuse Regulation (which will also have an effect on share repurchases by the issuer).

The content of management reports, in particular those included in annual reports, will be affected by the listing as extensive non-financial information will have to be disclosed, as well as information that must be disclosed by ‘public interest entities’ as defined in the Companies Act 1915, and information that would be pertinent in the context of a takeover; furthermore, the annual reports will have to be published in the European Single Electronic Format (ESEF), a specific electronic reporting format.

In terms of governance, the issuer will require an audit committee. The way shareholder meetings are convened, held and information published ahead and in the aftermath of every meeting will also be affected by the listing.

ii Euro MTF

For issuers whose shares are admitted to trading on the Euro MTF, the provisions of the Transparency Act 2008 and the Transparency Directive will not apply. Instead, those issuers are subject to similar continuing disclosure obligations set forth in the ROI (in addition to the communication requirements towards the LuxSE already mentioned for the regulated market, which also apply here).

The most important differences are that an issuer with shares admitted to trading on the Euro MTF must make available to the public the latest audited annual accounts drawn up in accordance with national legislation (IFRS are not compulsory), and half-yearly financials are required only if relevant national legislation requires their publication. The ESEF will not be relevant. As contrary to holders of BDL-listed shares, holders of Euro MTF-listed shares need not disclose to the issuer (or the CSSF) if they reach or cross any major holding thresholds, and issuers of Euro MTF-listed shares only have to make relevant publications if they were made aware of any such holding (and the relevant thresholds are, in that case, 10, 20, 33 1/3, 50 and 66 2/3 per cent of the total voting rights).

The Takeover Directive and the Squeeze-out and Sell-out Act will have no impact. The impact on the content of management reports and on corporate governance set out above is also not mandatory.

iii The LuxSE SOL

The ongoing disclosure obligations imposed by the SOL Rulebook are limited to certain events affecting the securities and the issuer. Those rules are not new, as they have been taken from Chapter 9 of the ROI. For issuers whose shares are admitted to listing on the LuxSE SOL, the SOL Rulebook provides for limited ongoing notification requirements (to the LuxSE, not the public at large) in relation to either events that are likely to affect the securities or to information when the issuer deems it necessary to ‘facilitate the due and proper operation of LuxSE SOL’ and contains a list of examples of such corporate or securities events.

The only publication obligation relating to securities admitted to the LuxSE SOL relates to the right of the LuxSE to request an issuer to issue a press release that contains the announcement of a suspension or withdrawal of securities from the LuxSE SOL. This suspension or withdrawal must be formally requested by the issuer, but can also be imposed by the LuxSE on its own initiative.

Outlook and conclusions

We live in challenging times: the war in the Ukraine and related sanctions, as well as inflation and related countermeasures demand attention from political and market players. International bodies, such as the International Monetary Fund, the Financial Action Task Force, the Organisation for Economic Co-operation and Development and European authorities, want to set aside the competitive distortions that result from an unlevel regulatory playing field, and are trying to eradicate weaknesses in regulation and supervision that might adversely affect the stability of the international financial systems by moving towards a single rule book.

The financial sector plays a key role in Luxembourg’s economy, and Luxembourg authorities are striving to find the right balance between increased supervision and the need for sufficient room to manoeuvre to allow the development of the financial sector.

Past changes in Luxembourg company law reinforce the current legal framework and further increase Luxembourg’s attractiveness as the IPO jurisdiction of choice for an increasing number of companies. Established market practice has been embedded in law (thus strengthening legal certainty), and a series of new mechanisms and instruments have been introduced to respond to the demands of a more complex economic environment, with a view to increasing the flexibility of Luxembourg company law. The latest one is the modernisation of the Luxembourg Act of 22 March 2004 on securitisation, adopted in February 2022, which is perceived positively by the majority of market players and is expected to have an effect on the population of issuers listed and admitted to trading on the LuxSE.

All of these changes should contribute to attracting even more interest in Luxembourg as an IPO jurisdiction.