26 March 2020 – need2know
The German BaFin (Federal Financial Supervisory Authority) publishes FAQ on ad hoc disclosure obligations for inside information (Art 17 MAR) on consequences of the COVID-19 pandemic.
The FAQs may also give a guidance for issuers in Austria. For ad hoc disclose obligations see also the overview COVID-19 Legal Update: Ad hoc disclosure obligations of listed companies.
In Austria, the Financial Market Authority (FMA) is the competent authority for implementing the MAR. Of course, guidelines of the German BaFin are not binding with respect to Austrian administrative practice. However, the FAQ of the German regulator may be used as general guidance for Austrian issuers.
Overview of the BaFin-FAQ
Does the postponement of resolutions on the payment of dividends as a result of the postponement of annual general meetings constitute inside information subject to the ad hoc disclosure requirement?
The sole fact that a resolution on the payment of dividends is postponed to a later date as a result of the postponement of the annual general meeting does not constitute inside information subject to the ad hoc disclosure requirement in the case of shares issued by the issuer in question as this does not constitute information that has the potential to have a significant effect on share prices. This is because the postponement of cash outflows for dividend payments does not in itself, as a rule, have a significant effect on the issuer’s financial position and financial performance and would not be taken into account by a reasonable investor when making an investment decision.
However, the postponement of resolutions on the payment of dividends may have the potential to have a significant effect on prices in the case of derivatives relating to these shares; thus, inside information may emerge in this regard. If this does not concern derivatives issued by the issuer itself, this does not constitute inside information subject to the ad hoc disclosure requirement for the issuer of the shares as this does not relate directly to the issuer.
Change in the planned dividend payment amount
Irrespective of the postponement of an annual general meeting, a (planned) change in the dividend payment amount originally announced may, however, constitute inside information subject to the ad hoc disclosure requirement. For instance, if it was already very likely when the annual general meeting was postponed that there would be a significant dividend cut, this in itself constitutes, as a rule, inside information subject to the ad hoc disclosure requirement.
Key agenda items with significant effects on the asset, financial and profit situation
Furthermore, it should be noted that a general meeting may also have to decide on agenda items for which the time of the resolution is of the essence and therefore the postponement of the resolution itself may have a significant impact on the issuer’s asset, financial and profit situation. Accordingly, inside information subject to an ad hoc disclosure obligation may also consist of the fact that the decision on an agenda item of the Annual General Meeting can only be made at a later date due to its postponement. This could be the case, for example, if a decision on urgently needed capital is to be made at the Annual General Meeting. Further examples of potential inside information could be the postponement of the approval of the Annual General Meeting for payment to outside shareholders in the event of a squeeze-out in connection with the cancellation of the Annual General Meeting.
How should inside information in the form of forecast changes as a result of current developments involving the novel coronavirus be treated?
It should be noted that any forecast changes are to be publicly disclosed only if they are sufficiently probable.
If the impact of the coronavirus crisis cannot be predicted yet, the issuer is entitled to maintain their previous forecast. However, a forecast change is not considered precise only once the exact impact on the financial position and financial performance can be determined in full. Thus, the rules concerning the public disclosure of inside information also apply to possible changes in the future business performance that are triggered by the virus.
If the issuer assumes, with a sufficient degree of probability, that the actual results will significantly fall short of the existing forecasts without being able to provide a new detailed forecast, it can be assumed that this constitutes inside information. In this case, it would be permissible for the issuer to withdraw the existing forecast from the market by means of an ad hoc disclosure, without this disclosure containing a new detailed forecast. If the issuer can provide a detailed forecast at a later date, this forecast must also, as a rule, be publicly disclosed in the form of an ad hoc disclosure without undue delay.
Are there specific aspects to be taken into account in light of the recent coronavirus outbreak when assessing whether financial figures constitute inside information?
It may not yet be possible to predict how the current coronavirus crisis will affect quarterly figures. If the coronavirus crisis has a determinable impact on the financial position and financial performance of the issuer in question and this impact results in a considerable difference between the financial figures and their relevant benchmark, this may constitute inside information subject to the ad hoc disclosure requirement for the issuer.
Given the current sharp price fluctuations on stock exchanges as a result of information involving the novel coronavirus and the resulting widespread increase in volatility of individual shares, it is more difficult in many cases to determine whether information has the potential to have a significant effect on share prices. In BaFin’s view, stricter criteria may need to be applied in individual cases when determining what is to be considered “considerable” in the context outlined above. By contrast, when determining what is to be deemed “considerable”, it is of no significance whether or not the effects of the coronavirus crisis on the financial position and performance are to be considered non-recurring expenses.
BaFin would also like to point out that the mere fact that there is a sharp price fluctuation following the public disclosure of financial figures does not mean that the information is to be automatically categorised as price-sensitive information. Rather, an ex-ante forecast is to be used as a basis when determining whether the information is price sensitive.
How should consensus estimates that only partially take into account the effects of the coronavirus outbreak be assessed given the current impact of the virus? How can market expectations be determined appropriately in such cases?
BaFin determines market expectations based on the mean value (arithmetical mean) of current analyst estimates (“consensus estimates”) at the time the inside information emerges. In BaFin’s view, adjustments for any outliers are, as a rule, not permissible. In this context, BaFin would like to point out that the specific circumstances of the individual case must be taken into account when determining whether information has the potential to have a significant effect on share prices. As it may be difficult in some cases to determine the mean value – e.g. because there are not enough available estimates – determining market expectations in a different manner on the basis of plausible information is permissible.
Given the current impact of the coronavirus crisis, BaFin considers, on an exceptional basis, that, in individual cases, it may be justifiable to adjust an existing consensus estimate in an appropriate and objectively transparent manner, e.g. on the basis of current press reports, if the consensus estimate refers to estimates that are clearly no longer up-to-date and that do not take into account the current situation.
See also COVID-19 Legal Update: Ad hoc disclosure obligations of listed companies for ad hoc disclosure obligations in connection with COVID-19 consequences.
Author: Christoph Nauer
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