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Important changes in the provisions on bonds

The regulatory aftermath of the Get Backu scandal is to be, among others, a significant change in the regulations regarding the issue of corporate bonds. The bonds will no longer be a simple and fast intra-group financing instrument. Soon, each issue will be supervised by an external entity, and information on bonds (also non-public) and their issuer will be publicly available.

The regulatory aftermath of the Get Backu scandal is to be, among others, a significant change in the regulations regarding the issue of corporate bonds. The bonds will no longer be a simple and fast intra-group financing instrument. Soon, each issue will be supervised by an external entity, and information on bonds (also non-public) and their issuer will be publicly available.

Dematerialization and mandatory registration at KDPW

The government has been expressly proceeding with amendments to certain acts in connection with the strengthening of supervision and investor protection in the financial market.

Since the entry into force of the amendment (probably the fourth quarter of this year), financial instruments such as corporate bonds, closed investment certificates and mortgage bonds will have to be registered in the securities depository kept by the National Depository for Securities (KDPW), currently in force for public securities and treasury bonds.

With a few exceptions, all bonds will be dematerialized (it will no longer be possible to make paper bonds).

A longer and more expensive emission process

The issue process will also be extended – currently, after the decision to issue corporate bonds, the entire process can take place virtually overnight. After introducing the changes, it will be necessary to conclude the contract for the issuance agent function (new institution) in advance, and then to conclude the deposit agreement.

The introduction of additional agreements with external entities will not only prolong the process, but also increase the financial expenses related to the issue (so far, simple bonds that were part of intra-group financing were often issued without the participation of legal advisors, now it will be necessary to involve external entities).

Double agent …

A new institution will be established – a bond issue agent that will fulfill a dual function: a supervisory body and an intermediary. The agent’s tasks will be primarily to check the uncertainties of the securities to be issued. After positive verification of the securities and the issuer, the agent will act as an intermediary in concluding the agreement for the registration of bonds in the securities depository.

… and double external supervision

The first stage of supervision will be verification of the securities’ correctness and their ability to be registered by the issuing agent at KDPW. Importantly, this requirement will not be able to be excluded or limited in the contract with the agent.

Registration of securities will be possible only in case of positive opinion on the bond projects (issue conditions) by the agent.

Indirectly, however, corporate issues will be supervised by the PFSA, which will have access to information on bonds and issuers through KDPW.

Universal access to data

A central repository of information on debt securities is planned. According to the project justification, access to information on bonds and issuers would be granted to: PFSA, other state authorities and interested investors. The wording of the provision implies, however, that access to the repository data would be “universal”. Regardless of which concept is adopted, there is no doubt that access to data about issuers and intra-corporational financial instruments will be much wider than so far.

And what about the bonds issued so far?

In relation to paper bonds issued before the entry into force of the abovementioned amendments, the law provides for a grace period – their dematerialization and registration in the deposit will be optional.

Even if the issuer does not decide to dematerialize, it will still be required to provide KDPW with basic information on issues with respect to bonds that will not be redeemed by the end of 2019 (eg in terms of the value and number of such securities or deadlines) liabilities). This information should be provided by the end of the first quarter of 2020. In addition, this data will have to be updated every 6 months.

Failure to perform or improper performance of obligations regarding the transitional period will be punishable by a fine of up to PLN 2 million.

The draft amendment was adopted this week by the Council of Ministers and was received by the duns.