Case Study
Mykenia is a state outside the EU which is hoping to become a member state. Its largest state corporation Mykene Oil (MO) is proposing to issue € denominated bonds in the markets as a prelude to Mykenia’s entry into the EU. It is proposing to have the € bonds sold across Europe and to sophisticated US investors.
MO requires your advice first on the question whether it will need to have a prospectus drafted complying with the EU Prospectus Directive (or the EU Prospectus Regulation depending on when the bonds are to be launced) if it wishes to have the bonds listed in Frankfurt, Paris or London though the bonds will only be sold to
sophisticated investors in the EU.
Secondly, whether it will need to file a registration statement with the SEC in order to sell the € bonds to sophisticated US investors or whether it could sell the securities under an applicable exception to the requirement of a registration statement under US securities law and if so, what would it need to do to fall within such an exemption.
In this context MO’s financial advisers have stated that it was necessary for purposes of a liquid market that US purchasers of securities should be able to resell the securities without being subject to a minimum holding period.
Thirdly, whether it would be required to provide information to such investors about itself and the securities and what should be done to limit any potential liability for misstatements or omissions.
The government of Mykenia also wishes to ensure that since this is the first € denominated issue by its largest state corporation it is perceived as an unqualified success by the markets and to that extent it requires your advice on whether if the markets are affected by global turbulence either due to a US – China trade war or because of escalating hostilities with North Korea or Syria, MO or the government could terminate the issue after the launch announcement and prior to closing date without any legal liability.
MO also wishes your advice on the conditions which it must fulfil in order for the underwriters of the bond issue to be liable to subscribe the bonds on closing date.
The government is also concerned about the potential impact of BREXIT on the on the finances of the smaller members of the EU. In that context, it requires your advice on whether it could redenominate the bonds into its local currency, the Ouzo, assuming the bonds are issued in dematerialised form under English law without a trustee under market standard bond documentation.
In the event that BREXIT causes financial problems in the EU, the government is concerned that MO may be subject to a significant downgrade by the international rating agencies, and that a default might be called under the terms of the bonds with resulting economic problems for Mykene. Consequently, it requires your advice on who would have the power to call default and in particular whether bond investors outside the EU would have a right to call a default in such circumstances.
MO is also proposing to sell the bonds not only in Europe but also in
Asian markets but is keen not to have any exposure to investors outside the EU for any potential omissions or misstatements in its prospectus. The bonds are to be listed on the London stock exchange. The MO requires your advice on whether if the prospectus is confined in its circulation to countries within the EU (even though sales are to be made outside the EU in Asia) this would achieve the government’s objective.