Although the cuts are still far from visible, the EU is embarking on some mini deregulation (example: the Omnibus package covering companies’ sustainability reporting), although it has not yet succeeded in pushing the development of the capital market on which it intends to finance a large part of the announced investments.
A good step forward could be the Unique European Prospectus, which financial advisor and analyst Hrvoje Serdarušić has drawn attention to, stating that behind this bureaucratic name lies a turning point in financing small and medium-sized enterprises. On his blog, he writes that the Unique European Prospectus is a standardized template for a prospectus for listing shares, a mandatory document in that process that will facilitate easier capital raising or company sales while using a predefined, free, universally available template.
Serdarušić specifies that this is a transitional solution that precedes the full implementation of the so-called Listing Act scheduled for June this year. The goal is to simplify and accelerate entrepreneurs’ access to the capital market and increase the number of IPOs in Europe, which lags significantly behind the US and Asia in terms of the number of new stock issues.
What does the Zagreb Stock Exchange say about this news? They state that the Unique European Prospectus, as a standardized document for informing investors, is one of the results of the Union’s efforts within the Action Plan for the Capital Markets Union.
– The goal is to create a more robust, efficient, and stronger single European market. The characteristics of this document are simplicity, conciseness, uniformity, and cost-effectiveness, which facilitate the technical aspect of entering the capital market. Given that it will be standardized, it will make it easier for investors to compare information. The reduced scope of the document and the lower costs of its preparation will ease the process of entering the market, especially for small and medium-sized companies that may not have had the capacity to meet previous requirements. An additional incentive for SMEs is the prospectus for the listing of SMEs on ‘growth’ markets, specifically designed for them, such as the Progress market of the Zagreb Stock Exchange, one of the first of its kind in the EU.
The EU Growth Prospectus is an even simpler document, yet it provides investors with a sufficient level of information for making investment decisions. Another advantage is that the Unique European Prospectus is valid throughout the EU and there is no need for local approvals – the ZSE states, adding that in the long term, such a practice could positively impact the increase of regulatory certainty and reduce differences among member states, lower the financial entry threshold for companies, especially SMEs, to enter the capital market, and facilitate informed investment decisions for investors. This opens up additional space for greater capital mobility and financing of companies through the stock exchange with stronger support from investors.
Assistance for Small and Medium-Sized Enterprises
The move, as far as Croatia is concerned, could not have come at a better time, as IPOs are once again ‘in vogue’ after several years. Mladen Miler, head of sales at OTP Invest, states that the Croatian capital market and the Zagreb Stock Exchange have experienced numerous market ups and downs during their recent 35-year history, but without losing sight of the fundamental goals: its development, the expansion of market participants, and the number of companies that will increase interest from both foreign and domestic investors, both institutional and individual, through their business operations and active participation in creating a transparent offer of investment instruments.
– To achieve these goals, the standardization of documentation in terms of the Unique European Prospectus can significantly help domestic companies, especially small and medium-sized ones, in their sales, capital raising through IPOs, and public financing (issuance of shares or bonds) on the domestic capital market. This will certainly help attract foreign investors who prefer markets that strive for simplicity, transparency of information about companies, and clearly defined standards for the preparation of necessary documentation when choosing markets for investments.
On the other hand, it can also assist future issuers, especially due to the simpler process of entering the market. Additionally, in the case of owners wishing to transfer ownership, a more transparent and simpler local capital market greatly facilitates this process. After the introduction of the euro at the beginning of 2023, thus eliminating currency risk for foreign investors, the introduction of the Unique European Prospectus for the Croatian market could bring it one step closer to greater attractiveness and increased trading volume – concludes Miler.
And we conclude that after nearly two decades of investment euphoria and large IPOs, the capital market could finally become a true alternative to bank financing.
