Preparation and approval of security (bond) prospectus

Definition and content of prospectus

The security prospectus is an information document for potential security investors and subscribers. In Czech practice it is usual to publish bond prospectuses; share prospectuses are less common. The prospectus is always drawn up for the purposes of public offers of investment securities or for the adoption of investment instruments on the regulated market.

The prospectus must contain all the data necessary to enable investors to make an informed assessment of the security offered and associated rights, assets and liabilities, financial situation, profit and loss, future development and financial standing of the issuer. The prospectus contains a summary with the following information:

  • brief characteristics of the issuer, including the risks associated with its assets, liabilities and financial situation,
  • a brief description of substantial risks of the issuer,
  • a brief description of substantial risks related to investment in the security concerned,
  • reasons for the public offer; the manner in which revenues from the public offer will be utilized by the issuer.

Legal regulation

Legal regulation of the public offer and the prospectus is contained in Sections 34 to 36m) Act No. 256/2004 Coll., on Capital Market Undertakings. The prerequisites for the content of the prospectus are stipulated by Commission Regulation (EC) No. 809/2004, implementing Directive 2003/71/EC of the European Parliament and of the Council.

Prospectus approval by CNB

A security prospectus in the Czech Republic must be approved by the Czech National Bank (CNB). The CNB approves:

  • the security prospectus
  • the base prospectus
  • the prospectus supplement
  • the prospectus addendum (taken into account)

The prospectus is approved in administrative proceedings, on the basis of a written application filed electronically. According to the law, the CNB has 20 working days to issue its decision. In the event of any shortcomings in the prospectus filed for approval, the petitioner is invited to correct them and the CNB suspends the proceedings. The administrative period for processing the application is interrupted for the suspension period or until the prospectus has been properly corrected. If the prospectus is not prepared in a qualified manner, the approval procedure may take up to several months.

Security prospectus and base prospectus

The security prospectus is published for a single issue of securities (e.g. bonds) and must contain all the statutory data. The base prospectus does not have to contain the final conditions of issue (e.g. volume, interest rate, maturity) if it concerns bonds offered within the framework of a (bond) issuance program. The (bond) issuance program enables the entity to issue and publicly offer multiple issues under one prospectus for the period of validity (see below) of the base prospectus. Individual issues and their final conditions are described in the addenda to the bond offer program. The issues may differ in terms of their interest rates, nominal value, volume, period of maturity etc.

Difference between addendum and supplement

The addendum to the bond offer program specifies the parameters of a particular issue within the bond issuance program covered by the base prospectus. The addendum to each issue becomes part of the base prospectus and must be published together. It must also be sent to the CNB for information.

The supplement to the prospectus or to the base prospectus is drawn up if a substantial change in a certain circumstance stated in the prospectus occurs while the prospectus or the base prospectus are valid, or in the event that significantly inaccurate information has been ascertained and such a change or inaccuracy could affect the rating of the security concerned.

Publication and validity of prospectus

The issuer publishes the full wording of the prospectus at least on the issuer’s or on the offering entity’s website, if the securities are offered by a person other than the issuer, without undue delay after approval.

The prospectus for the purposes of the public offer is valid for 12 months after approval by the CNB. The base prospectus for the purposes of the bond issuance program is valid for a maximum of 12 months after publication.

Promotion of issue with prospectus, investment intermediaries

Each promotional notice of a public offer of bonds must contain information about the publication of the prospectus and where it can be accessed. Each promotional notice of the issuer or of the distributors of the bonds must correspond to the information in the prospectus and must not be misleading.

The advantage of bond issues with a prospectus is that they may be legally advertised on the Internet and distributed by investment intermediaries. Issuers with a prospectus are more likely to place a bond issue than those without a prospectus.

How to start

The issuer shall have the 2 most recent final accounts reviewed by an auditor. These shall form an annex to the prospectus. If the company has existed for a shorter time, the auditor shall review the last final accounts (an application to narrow the prospectus must be filed). If the issuer is not subject to a mandatory audit, we recommend starting with an audit of the final accounts. With regard to the complexity and scope of the prospectus (approx. 100 pages) we recommend contacting specialized legal consultants (e.g. our law office) requesting that it prepare the prospectus.

What we can do for you

There are 8 specialized lawyers and 4 economists working in our law office. Therefore, we are able to consider both the legal and the financial aspects of the matter. The outcome is a high quality tailor-made prospectus, which is usually subject to few comments by the CNB. We are able to:

  • assess and recommend a suitable setup for the bond issue, based on our practical experience (interest rate, nominal value, frequency of coupon payments, maturity etc.)
  • draw up of a complete bond prospectus
  • file the prospectus and provide representation in administrative proceedings before the CNB
  • ensure the correct publication of the prospectus on the issuer’s website
  • recommend the most suitable method of distributing the issue on the financial market (through investment intermediaries, cooperation with securities traders, on-line promotion etc.)

We are ready to draw up your prospectus, have it approved by the CNB and guide you throughout the process.

Contact us