The AMF calls on listed companies to improve investor information regarding the risks incurred in the case of dilutive financing transactions

In their search for equity financing, some listed companies may resort to financing consisting of capital increases carried out in several instalments and spread over time for the benefit of an intermediary who does not intend to be a long-term shareholder. These arrangements may, for example, take the form of capital increase programmes through the exercise of options (PACEOs – according to the French acronym – or equity lines) or the issuance of convertible bonds with warrants attached (OCABSAs).

In recent years, the AMF has observed an upsurge in reports and complaints from individuals who have lost a significant part of their investments in listed companies that have resorted to this type of financing. In all, in 2021-2022 more than 500 investors contacted the AMF, noting in particular significant capital dilution and steep falls in the share prices. In a study carried out on a sample of 69 companies that resorted to OCABSA type financing, the AMF observed that 57 companies had seen their share price fall by 72% on average since carrying out a first financing transaction.

Following several notices intended both for the companies, their company officers and investors, the AMF is reinforcing its policy. In a Position-Recommendation whose scope has been extended to cover all dilutive financing transactions spread over time, it clarifies its expectations regarding communication when entering into the agreement between the company and the intermediary. It thereby wants to ensure that the information provided to investors enables them to better understand the company's situation. For easier reading, the AMF proposes a press release template presenting the essential information in order of importance.

For a better understanding of the risks incurred by investors, it also recommends that companies include in the header of their notice a warning about the specific features of the securities issued, the risks of strong downward pressure on the share price and of the loss of their invested capital, as well as the risk of severe dilution due to the large number of securities issued. The AMF provides an insert template for this purpose (see insert below).

Its duties of protection of savings and investor information may lead the AMF to publish a press release naming the issuer and informing investors, notably via the following warning, of the risks of such transactions if the issuer who performs them has either failed to reproduce this warning or fully replicate its substance in the header of its communications, or if it has not disclosed to the market all the information appearing in the press release template.

About the AMF
The AMF is an independent public authority responsible for ensuring that savings invested in financial products are protected and that investors are provided with adequate information. The AMF also supervises the orderly operations of markets.Visit our website https://www.amf-france.org/en