03-07-2014

Admission To The Cyprus Stock Exchange & The Emerging Companies Market

Authors

  • Angelos Exadaktylos, Attorney at law - Legal Consultant
    Associate at Papantoniou & Papantoniou LLC, Member of the European Law Firm,
    Advocates and Legal Consultants

What is the history and legal substance of the CSE?

The CSE started its operations as a legal entity in the form of a public corporate body on the 29th of March of 1996, by virtue of The Cyprus Stock Exchange Laws and Regulations which had been passed by the House of Representatives in 1993 and 1995. The CSE is a regulated Market where all transactions concerning corporate and public securities are carried out. Such securities include stocks, bonds and warrants. The main participants in the market are the Members of the Stock Exchange (stock brokerage firms), the listed issuers and the investors.

What are the objectives of the CSE?

According to section 5 of the Securities and Cyprus Stock Exchange Law: The prime objectives and competencies of the Stock Exchange and its related powers and duties, are:

  • To take all necessary and appropriate measures for the development of the securities market, as well as to control and regulate transactions in securities
  • To provide the necessary facilities for the trading of securities and the issuing of an official price bulletin
  • To facilitate the execution of stock market transactions
  • To provide procedures and means for supplying stock market information relating to the movement and trading of securities
  • To provide for the prompt display of relevant data for the information of members
  • To provide publication of a stock market bulletin either daily or periodically as determined by a decision of the Council.
  • To promote stock market activity and to use for this purpose every appropriate means of publicity regarding the benefits and the services of the Stock Exchange.
  • To encourage an orderly and systematic securities market, to combat fraudulent and improper stock market transaction practices and to provide the due protection of investors and the public in general.
  • To prepare and submit for approval the stock exchange Regulations necessary to achieve its objectives and to take every other action necessary for this purpose.

In addition to the Stock Exchange’s primary competencies as provided above, the Stock Exchange is assigned with any other functions, which customarily constitute the competence of a stock exchange, together with their related powers and duties.

Which is the monitoring authority of the CSE as a regulated market?

The monitoring authority of the CSE is the Cyprus Securities and Exchange Commission (CySec).

CySec was established in accordance with section 5 of the Cyprus Securities and Exchange Commission (Establishment and Responsibilities) Law of 2001 as a public corporate body. Generally, the Commission ensures the safety and protection of the investors and the public companies from internal and/or external dangers of fraud or from any other illegal activities.

Why it is beneficial for a public company to obtain a listing on the CSE?

Admission to the CSE offers the following advantages:

1. A vehicle for raising capital

The CSE provides the listed companies with alternative means for raising the capital required, in order to finance their development and growth activities. The objective is to reduce their reliance on the more conventional ways of raising capital. Consequently, the CSE offers primarily to the small investors alternative options and possibilities for their investments and may act as a channel through where savings can be directed to the most productive, effective and efficient internal investments of the listed companies.

2. The growth and development of the sphere of activities of listed companies

The predominant feature of the economy of Cyprus is the large number of small to medium sized family enterprises, some of which are very credible and promising. However, on average, such companies often have limited prospects of growth and development and they cannot benefit from economies of scale. Due to the lack of sufficient infrastructure and solid foundations, the prospect of being exposed to the strong competition to be faced as a result of the anticipated membership of Cyprus in the EU is causing serious concern to many such companies, some of which may not be able to compete in such a harsh environment. Going public and obtaining a listing may offer a way out of these difficulties in the sense that the listing can provide the necessary funds to boost their growth potential. Furthermore, the control of the companies will gradually be dispersed from their founders to a large number of shareholders and this will consequently lead to improved management which, following this line of thought, can lead to more growth.

3. Strengthening of the company

By obtaining a listing, local and foreign companies can gain strength and reach the minimum size required in order to be able to be able to become competitive in the globalize environment.

4. Opportunity to invest abroad

Following the liberalization of interest rates and the removal of restrictions in capital flows, listed companies will be able to utilize the funds raised through the CSE in order to invest abroad in countries where financing is difficult to obtain, but where the prospects are promising. In the same way, companies from abroad will be given the chance to invest in local companies, and consequently listed companies will be able to enjoy their participation in foreign investments. It must be mentioned that, the chances of achieving such international goals are greatly enhanced if a company has a local listing and a credible record before it seeks a listing abroad.

5. Enhanced corporate image

Listed companies enjoy the privilege of attracting publicity, with all the positive implications associated with it. Furthermore, obtaining a listing has a status factor, which often enables listed companies to obtain finance on better terms than a private company.

6. Greater Marketability

Investors who choose to invest in listed companies may liquidate their investments at any time, an advantage that cannot be enjoyed when investing in private companies. 

7. A path to mergers and acquisitions

It is much easier for listed companies to proceed with a merger and acquisition, of either a company listed on CSE or a foreign company, and enjoy the synergy from such an option. The reason for this is the regulated market demands transparency to the economic affairs of each listed company. Hence, this enables offerors to provide accurate assessments of the potential growth and benefits that can be gained from such a strategic move.

Are there any tax incentives that favor a Public Company when admitted to the CSE?

In Cyprus there are plenty of tax incentives that may favor local and foreign investors.

a) Tax incentives for investors

According to the prevailing law, shareholders in listed companies enjoy the following tax incentives: 30% of the amount that is invested either by a legal person or physical person in an Initial Public Offering (IPO) can be deducted from the total amount of Income Tax payable, provided that:

  • The number of shares issued, represent at least, the 80% of the issued share capital with voting rights and are listed on the CSE within 3 months from the date of issue.
  • The number of shares issued, represent at least, the 80% of the issued share capital with voting rights and are listed on the CSE within 3 months from the date of issue.
  • The deduction is granted for the taxable year in which the listing is made.
  • This amount does not exceed 25% of the taxable income, before any deductions made to it.
  • If the restriction of point c, then the deduction can be forwarded for the following taxable years.
  • The deduction is not granted in the case of a company that undertakes, fully or partly, the activities of another company that has already listed shares on the CSE.
  • The deduction is not granted in the case of an entity that acquires directly or indirectly, shares of a company for which the deduction has already be given, or for which another deduction has been given before the validation of Law Number 79(1) of 1997.
  • The term “shares” that is mentioned in all of the points above does not include redeemable shares.

b) Tax incentives for foreign investors

The tax treatment of foreign investors depends on the tax regime that each investor is bound with. In the case where a Double Taxation Avoidance Treaty between Cyprus and investor’s country exists, investor’s income is not taxed when is brought to his/her country.

What are the issuer requirements that wish to be listed in the CSE?

The most important requirements that a local or foreign or issuer must comply with are the following:

  • The issuer must have been founded and operate in compliance with the law of the country that is based
  • The Articles and Memorandum of Association must authorize the issuer to issue the specific titles for which the listing is sought
  • The issuer must have published audited accounts for at least three years preceding the application. In case that the issuer is a recently established company, the disclosure requirement may be dispensed
  • Issuers whose shares are already listed on a foreign stock exchange must comply with the regulations of such stock exchange
  • No shareholder of the issuer general capital may control more than 70%
  • Minimum 25% of the issuers’ share capital must be satisfactorily issued among the public at large and the issuer may not favour any individual investor or group of investors
  • The issuer must clarify to the existing shareholders that they will have the pre­emptive rights in subsequent issues of shares
  • The issuer must satisfy the CSE Board that it has sufficient capital at its disposal
  • The issuer must comply with all the statutory reporting and disclosure requirements that the CSE Board may demand.

In exceptional circumstances some of the abovementioned requirements may be waived at the Discretion of the CSE Board.

What are the methods on listing securities?

  • By public offer for subscription for the purchase of titles which have not yet been issued or allotted
  • By public offer for sale of titles which have already been issued  or allotted
  • By offer to sale through the introduction of titles already issued
  • By private placement.

What are the requirements on registering Public Offerings?

When the issuer applies for the registration of a public offer for subscription on purchasing the titles which have not yet been issued or allotted, the issue must be underwritten by one underwriter who must be approved by the CSE Board. Public offers are subject to prospectus requirements in order to enable investors to make the appropriate decisions. To be able to publish the prospectus, the issuer must gain a licence from the CSE Board. After obtaining the necessary licence, the issuer must within 15 days publish the listing particulars to two daily newspapers of nation-wide circulation. Also, the prospectus must be made available to a Cypriot address where potential investors may obtain a copy of it.

What is the EMERGING COMPANIES MARKET (ECM)?

It’s a new, innovative and unregulated market which it does not come under the mandatory provisions for regulated markets which impose strict listing requirements and continuous obligations. It is considered as a Multilateral Trading Facility (MTF) and operates in accordance with the Regulative Decisions adopted by the CSE. The operation of the E.C.M. is expected to bring further development to the CSE operations and to increase its competitiveness. Transactions on the Emerging Companies Market are conducted as on regulated markets.

What are the advantages of a public company being listed in the ECM?

For the Companies

  • It is an alternative method for securing financing at competitive cost.
  • It promotes the recognition and reputation of the companies.
  • It prepares them to transfer to the regulated market, through the gradual increase of the dispersion and velocity of their shares.

For companies already listed, entry into the E.C.M. offers the possibility of flotation with simplified procedures as long as they first delisted from the regulated market, if they are unwilling or unable to cope with the cost of maintaining the increased obligations of the regulated markets.

For Investment Firms

  • Expansion of operations to new products/services.
  • Increase of recognition value and reputation.
  • Possibility of self-regulation, hence increase of market confidence towards them.

What are the methods for listing in the ECM?

The listing of a company on the Emerging Companies Market can be achieved in two ways:

(a) By public offering: If the offering is public, greater than Euro 2.5 million and is addressed to over 100 persons, a Prospectus and approval from the Securities and Exchange Commission will be required.

(b) Through private placement: If addressed only to institutional investors (strategic or other) or to fewer than 100 persons and less than Euro 2.5 million will be raised, an Admission Document must be submitted to the CSE, without a requirement for approval by CySec.

(c) A combination of (a) and (b) above.

What are the conditions for a public company to be listed in the ECM?

  • The issuer must have published audited accounts, had normal operations and related activities for at least two years preceding the application. Newly established companies will be able to be listed if the CSE potential shareholders are given satisfactory information that would allow them to access properly the value of the titles, from the Nominated Advisor of the issuer.
  • Throughout the flotation procedure, the issuer must have a Nominated Advisor.
  • The issuer must be a public company with a satisfactory number of investors.
  • No minimum share capital must be dispersed among the general public.
  • There is no criterion as to the minimum market capitalization.
  • There is no criterion for the minimum shareholders equity an issuer must have. Additionally some of the general requirements of the existing markets of the CSE will also apply. These are:
  • The issuer must have been properly established and operating, and must be a public company pursuant to the public companies law of its country of incorporation, which provides to the issuer the power to issue shares to the public.
  • The issuer must be authorized to issue the specific shares which seeks to float in pursuance to the law of the country of incorporation, the memorandum and articles of association or any other document governing the terms of its incorporation and relations among its members.
  • The issuer is proposing the flotation of freely transferable securities.
  • The issuer shall not undertake any commitment in any way incompatible with the interest of its shareholders.
  • Equal treatment must be secured to the beneficiaries of securities of the same category, in respect of all rights or obligations related thereto.
  • In the case of shares, it must be ensured that any future issue shall first be offered to existing shareholders pro rata according to the amount each holds in the issuer’s share capital, unless the shareholders shall decide otherwise by special resolution.
  • Fully paid securities shall be proposed for flotation.
  • The listing must concern all the securities of the same category which have, or will be, issued, as well as all options or other derivatives which are convertible or offer the possibility of being converted into securities in the same category as the securities to be floated.
  • The issuer must be prepared and able to deliver its Register to the Central Depository and Registry and to respond to any obligation upon the undertaking or the future keeping of the Register or Registers of its shareholders.

* the above mentioned information were taken from the Cyprus Stock Exchange website and the Cyprus Securities and Cyprus Stock Exchange Laws

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