Contributed by Karanovic & Partners.
1. Market Overview
The capital market in Serbia is still under development. Serbia’s capital market took a pause from the Second World War until the last decade of the twentieth century during which period Serbia did not have a market-based economy, and its economy was governed by socialist principles. At the end of the twentieth century, Serbia reaffirmed a market economy and started redeveloping its capital market. While a number of measures have been taken in that direction (for example, almost all joint stock companies had to be listed, as a result of which even today there is a proportionally significant number of listed companies in Serbia), there is still a long way to go.
The Belgrade Stock Exchange (BELEX) is the only stock exchange in Serbia. It recorded a total turnover of approximately EUR 326 million in 2022, and approximately EUR 22 million by mid-March 2023 (the biggest turnover in the last 10 years was in 2019 when the turnover was approximately EUR 780 million). At this stage, there are not any available comprehensive analyses and reports on market trends in 2022. Securities traded on BELEX include shares, and bonds (basically, these are only bonds of the Republic of Serbia). Therefore, the debt market in particular has room for improvement.
In the last decade, there has been a steady trend of a constant decrease in the number of issuers of financial instruments and the number of public joint-stock companies, according to publicly available data. On the other hand, in 2018, the first initial public offering (IPO) of shares in almost 80 years was successfully completed in Serbia. Shares of Fintel Energy a.d. Belgrade were included on the Prime Listing and after the successfully-completed IPO the company’s stock trading started on 20 November 2018.
From the regulatory perspective, a new Capital Market Law (the Law) started being applied in January 2023. The provisions of the Law are aimed at further harmonization of the local legal and institutional framework with the European Union’s regulations of financial instrument markets. Hopefully, this will contribute to BELEX becoming more attractive for foreign investors, especially taking into account that the Athens Stock Exchange, as one of the largest stock exchanges in Southeast Europe, acquired 10.24 % of the shares in BELEX.
Also in January 2023, BELEX, as a part of the modernization and innovation of the Serbian capital market, launched the first online application for over-the-counter (OTC) transactions which enables easier delivery of necessary information about the completed OTC transactions on BELEX.
2. Overview of the local stock exchange and listing segments (Regulated and Non-regulated markets)
The capital market in Serbia is primarily regulated by the Law and related by-laws and the main regulator is the Securities Exchange Commission of Serbia (SEC).
In accordance with the Law, the Serbian capital market is structured in the following manner:
- regulated market, comprising of:
- listed segment, and
- non-listed segment,
- multilateral trading facility (MTF),
- organized trading facility (OTF) market (not established yet); and
- over-the-counter (OTC) market.
In terms of the Law, a public company is an issuer that meets at least one of the following conditions:
- it has successfully completed a public offering of securities in accordance with the prospectus approved by the SEC, or
- its securities are admitted to trading on a regulated market, MTF or OTF in Serbia.
Generally, a public company needs to file an application to admit its securities to trading on a regulated market. However, if:
- securities do not meet the listing standards of the regulated market; they may be admitted to trading on a non-listed segment of the regulated market.
- securities do not meet the requirements for admission to a non-listed segment of the regulated market either, they may be admitted to trading on the MTF.
It should be noted that only investment companies having a license from the SEC may trade on a regulated market or MTF – other persons may trade on these markets only through such investment companies.
Also, only investment firms licensed by the SEC are entitled to intermediate transactions in an OTC market. The SEC exercises supervision over the OTC market by supervising investment companies engaged in transactions regarding the financial instruments on the OTC market.
Securities included in one of the market segments, cannot be traded on another market segment of the regulated market or MTF.
3. Key Listing Requirements (ECM and DCM)
Currently, the only existing regulated market and MTF in Serbia are organized by BELEX. More specifically, trading on BELEX is structured in the following manner:
- regulated market, consisting of:
- listed segment, consisting of:
- Prime Listing;
- SMart Listing.
- non-listed segment – Open Market,
- multilateral trading facility.
Since the start of 2023, the (previous) additional type of listing – Standard Listing, has been deleted and all of the securities listed there were transferred to Prime Listing.
It is worth noting that short-term debt securities are not traded as a part of the BELEX-listed segment.
The criteria for the listed segment are given as follows:
- Prime listing
- minimum three years of business operations;
- published or adopted annual financial report for three business years preceding the listing application, under which there is;
i. positive auditor’s opinion in the business year preceding the submission (or in the relevant extraordinary financial report);
ii. achieved a net profit in the business year preceding the submission (or in the relevant extraordinary financial report). There are certain exceptions to these requirements (e.g., i. and ii. are not applicable for the issuer of long-term debt securities));
- EUR 3 million minimal capital;
- issuer’s webpage with both the Serbian and English versions;
- with respect to shares (and depository receipts):
i. dividends per preference shares have been paid in accordance with the decision on issuance of those dividends if issued;
ii. free float:
1) 25% of total shares issued in the free float, excluding (a) the shares of individuals who own 5% or more of the total shares (this does not relate to certain shares, such as shares owned by investment funds), (b) shares owned by international organizations, and (c) shares owned by the Republic of Serbia and state-owned organizations; or alternatively
2) free floated shares in the minimum capital of EUR 1 million (owned by at least 150 shareholders), or
3) free floated shares owned by at least 300 shareholders;
- with respect to long-term debt securities:
- emission value: at least EUR 1 million;
- the issuer’s account has not been blocked in the last 180 days.
- SMart Listing
- minimum three years of business operations (or less under certain specific circumstances prescribed by the Law);
- published or adopted annual financial report for three business years preceding the submission;
- unqualified or qualified auditor’s opinion in the business year preceding the submission (or in the relevant extraordinary financial report);
- EUR 1 million minimal capital (in certain cases, EUR 500,000);
- issuer’s webpage with both the Serbian and English versions;
- free float:
i. 25% of total shares issued in the free float, excluding (a) the shares of individuals who own 5% or more of the total shares (this does not relate to certain shares, such as shares owned by investment funds), (b) shares owned by international organizations, and (c) shares owned by Republic of Serbia and state-owned organizations; or alternatively
ii. shares in the free float in the amount of EUR 150,000, in certain cases.
Only shares and respective depository receipts can be listed on SMart Listing.
Securities that do not meet the requirements for inclusion on the requested listed segment of the regulated market, can be included on the alternatively requested listed segment or MTF (where cannot be included the securities of the companies under bankruptcy or liquidation) organized by BELEX. Exceptionally, BELEX can approve the inclusion of the above-mentioned securities in the requested prioritized segment of the regulated market if it assesses that the securities can be traded correctly, orderly, and efficiently taking into account available information and other relevant criteria such as minimum capital, number of free float shares, etc.
Non-listed segment – Open Market. BELEX prescribes the following criteria for the Open Market:
- there is no initiated bankruptcy or liquidation process over the issuer;
- with respect to the shares or depository receipts: (i) minimum capital in the amount EUR 300,000, or alternatively (b) 15% free float shares;
- with respect to the debt securities, the minimum value of the emission – EUR 200,000.
4. Prospectus Disclosure
Any public offering of securities in Serbia must be made with prior publication of a prospectus (the Law provides, though, certain exemptions). In a similar manner, prior publishing of the valid prospectus is required before admission of securities to trading on a regulated market or MTF (with also certain exceptions provided under the Law). It should be noted that the new Law and appropriate new bylaws include a more detailed regulation on the prospectus and publishing information relevant to interested investors, which enables greater transparency, reduction of systemic risk on the capital market, as well as increasing trust in securities and contributing to the development of the capital market.
What sometimes makes confusion is a rather wide definition of a public offering given by the Law, under which a public offer is any notice given in any form, giving sufficient information on the offer and securities, so that the recipient can decide whether to buy securities. Due to such a definition, even an offering to one person might be regarded in certain situations as a public offer.
There is a general rule that provisions of the Law regarding public offering are not applicable for securities whose total value is less than EUR 1 million, except in the case of publication of a voluntary prospectus.
Furthermore, publishing a prospectus in case of a public offer is not required in case of:
1) an offer addressed to qualified investors exclusively;
2) an offer addressed to not more than 150 natural or legal persons in Serbia, other than qualified investors;
3) an offer addressed to investors who will acquire securities for a total consideration of at least EUR 100,000, per investor, for each separate offer;
4) an offer of securities where the nominal value of each security amounts to at least EUR 100,000;
5) shares issued in substitution for shares of the same class already issued, if the issuing of such new shares does not involve any increase company’s share capital;
6) securities offered in connection with a takeover bid by means of an exchange offer;
7) securities offered, allotted, or to be allotted in connection with a merger of the companies;
8) dividends paid to exist shareholders in shares of the same class as the shares in respect of which those dividends are paid;
9) securities offered, or to be offered/vested by an issuer or by its affiliated company, to existing or former members of management or employees.
10) non-proprietary securities that are continuously or periodically issued by credit institutions, if the total fee for the securities offered in Serbia is less than EUR 75,000,000, per credit institution, and which is calculated for a period of 12 months, provided that these securities:
- do not represent subordinated obligations, nor are they convertible or replaceable; and
- do not give the right to subscribe or acquire other types of securities that are not related to derivative instruments.
Apart from the above exemptions, the Law prescribes certain other exemptions when it comes to the admission of securities to a regulated market or MTF, such as the admission of shares representing less than 20% of the total number of shares of the same class already admitted to trading and similar.
It should be noted that prospectus-related duties prescribed under the Law are not related to certain specific categories (such as UCITS funds or non-proprietary securities issued by the Republic of Serbia).
The prospectus is the key disclosure document used to offer financial instruments.
The prospectus needs to contain all information which, bearing in mind the particular nature of the issuer and respective securities, are necessary to enable investors to make an objective assessment of the assets and liabilities, profit and losses, financial position, and potential business results of the issuer and all guarantors, rights attached to securities and reasons for issuance and its impact on the issuer. There is numerous additional information that the prospectus should contain depending on the type of security and issuer.
In any case, the information contained in the prospectus needs to be in a concise and comprehensible form in order to enable a simple analysis.
The prospectus can be prepared as one document (single prospectus) or as several separate documents (split prospectus) and generally, each prospectus should have a summary prospectus as well.
The issuers can omit information from a prospectus in certain circumstances where the SEC may authorize the disclosure of such information would be:
- contrary to the public interest;
- seriously detrimental to the issuer (provided that the omission would not be likely to mislead the public); or
- the information is of minor importance in the specific situation and would not influence the assessment of the financial position and prospects of the issuer.
Certain information may be incorporated in the prospectus by reference to one or more previously or simultaneously published documents (provided that this information is the latest available to the issuer). In such case, a prospectus shall contain a list of all used cross references.
5. Prospectus Approval Process
The SEC is a competent authority in Serbia for reviewing and approving prospectuses.
An issuer/offeror may submit the application for approval of the (i) publication of the prospectus for a public offering of securities and (ii) prospectus for admission of securities to a regulated market or MTF. Along with this application, the following should be submitted:
- decision on issuance of securities and/or admission to trading, including any additional information required to be filed with the respective regulated market or MTF;
- copies of the prospectus;
- articles of association and memorandum of association;
- where applicable, approval from a competent body, if the applicable law prescribes that the issuance of securities shall be allowed only with the previous approval of that body;
- a document containing evidence that the conditions for admission to trading have been met, following the approval of the prospectus for admission of securities to trading on a regulated market or MTF;
- other documentation required by the SEC.
The SEC will issue a decision on approval of the publication of a prospectus within 10 business days following the satisfactory receipt of the application. This deadline becomes 20 business days if the public offering involves securities issued by an issuer that does not have any securities admitted to trading on a regulated market or MTF (in certain specific cases, these deadlines can be even shorter).
In case of irregularities/incompleteness of the prospectus, the SEC will notify the issuer requesting that the documents are corrected/supplemented, within ten business days of the submission of the application.
Publication of the prospectus
An issuer/offeror needs to publish its prospectus within a reasonable deadline of receipt of the SEC’s approval (and at the latest at the beginning of the public offer or the admission to trading on the regulated market or MTF).
If the initial public offering includes a class of shares that is admitted to trading on a regulated market for the first time, the prospectus should be available to the public at least six business days before the offer expires.
The prospectus can be published in an electronic form in a special, easily available part of a website (which does not need registration to access), through one of the following websites:
- on the website of an issuer, bidder, or person requesting admission in trading on the regulated market website;
- on the website of the financial intermediaries providing the services and performing activities in connection with the placing or selling of the securities;
- on the website of the regulated market or MTF.
Also, the Law prescribes certain obligations in relation to the advertisement activities (e.g., the advertisement must be clearly recognizable as such, the information contained in an advertisement cannot be inaccurate or misleading, the information contained in an advertisement needs to be consistent with the information contained in the prospectus, etc).
The deadline for the start of the subscription and payment for securities should commence no later than 15 business days of the receipt of approval on the prospectus’ publication and the deadline for subscription and payment of securities cannot exceed three months following the day indicated in the prospectus (the SEC may extend this deadline by 45 business days).
Supplements to the prospectus
The issuer/offeror needs to (promptly) create a supplement to the prospectus and submit it to the SEC for approval, if a significant new factor, material mistake, or inaccuracy has arisen relating to the information included in the prospectus which can affect the assessment of securities, in case that such factor or mistake/inaccuracy arises/is noted between the (i) prospectus’ approval and (ii) final closing of the public offer or the moment of admission to the securities market.
Such a supplement needs to be approved in the same way as the initial prospectus within a maximum of five working days of the application receipt and published on the day following the approval (i.e., in the same manner as the initial prospectus). The summary prospectus needs also to be supplemented (if necessary, bearing in mind the new information).
Investors who have already agreed to purchase or subscribe for the securities before the supplement is published will have the right, exercisable within the time period designated in the supplement (which cannot be shorter than two working days after the supplement’s publication), to withdraw their acceptances (provided that the fact, due to which the supplement is made, has occurred/was noticed before the offer expiration or transfer of securities).
The prospectus will be valid for 12 months after its publication, provided that the prospectus is supplemented in accordance with the above-stated requirements for supplementation.
While the Law allows for foreign issuers to list foreign securities in Serbia, rules are rather technical and complicated, and, adding the fact that the Serbian capital market is still under development, we still did not see the listing of any foreign securities in Serbia.
The issuer headquartered outside of Serbia needs to file with the SEC an application for the approval of a public offer prospectus or admission to trading of its securities on a regulated market or MTF in Serbia. Please note that all foreign documents provided to any Serbian authority should be translated into the Serbian language.
Please note that any matter involving foreign issuers should be observed also from the perspective of Serbia’s Forex regulation.
6. Timeline, process with the stock exchange
Under the BELEX rules, the issuer, in general, needs to submit the request to BELEX with the following documents/information:
- information on the issuer;
- prospectus approved by the SEC (or with relevant statements in case of exceptions to the requirement for publication of the prospectus);
- corporate documentation (such as a memorandum of association, articles of association, excerpt, decisions of the issuer’s competent bodies, etc.);
- most relevant company excerpt if the issuer is a foreign company;
- relevant financial statements;
- information on paid dividends;
- written statements that (i) there are no proceedings initiated against the company by SEC and (ii) there are competent people in charge of the activities regarding the regulated market;
- adopted Code of Corporate Management (CCM) or a statement that the CCM of another company is adopted;
- report on public offer (if there was a prior public offer);
- guarantee, if the emission of securities is guaranteed;
- relevant agreements (e.g., with underwriter, investment company, etc.);
- other documents/statements required by BELEX.
BELEX will adopt the listing request within 15 business days of the receipt of the complete request – in certain cases, this deadline is five business days (when the subject of that request is a long-term debt security). However, in general, if the request refers to the issuer who has not (recently) initiated a public offer or if respective shares were not admitted to the regulated market, the BELEX deadline to adopt the listing request is 30 days.
Also, the issuer will need to enter into an agreement with BELEX.
Non-listed segment – Open Market
In case of admission to the Open Market, (i) the request should contain similar (and a smaller number of) documents comparing to admission to the BELEX listed segment and (ii) the timeline for the admission should be the same as for the BELEX listed segment.
In case securities and issuers do not fulfill the criteria for admission to the segments of the ed market, such securities can be admitted to the MTF, with the exception that no bankruptcy or liquidation proceedings have been initiated against the company.
7. Corporate Governance (Corporate governance code/rules (INED, board and supervisory composition, committees) and any other ESG considerations)
Public companies may be organized as either one-tier or two-tier governance systems.
7.1. One-tier system
Besides the shareholders’ assembly, public companies need to have a board of directors that consists of at least three directors. On the other hand, private companies may have one or two directors. In line with the Companies Law, the directors may not be persons who are either:
(a) performing the function of a director or a supervisory board member in more than five companies;
(b) sentenced for a crime against the economy, within five years, as of the day of such ruling becoming final, not including the time spent serving a prison sentence; or
(c) imposed a prohibition of conduct of business which constitutes the prevailing business activity of the company, for the duration of such prohibition.
The directors can be:
- Executive directors who are deemed as statutory representatives of the company and oversee day-to-day business activities and management of the company. One of the executive directors may be appointed as a general director (CEO) who coordinates the work of executive directors and organizes the company’s business;
- Non-executive directors who supervise the work of the executive directors and propose and supervise the implementation of the business strategy of the company. Non-executive directors cannot be employed by the company. The number of non-executive directors of public companies needs to exceed the number of its executive directors, whereas at least one of the non-executive directors needs to be the independent non-executive director (INED).
The INED needs to fulfill the following criteria in each moment within their mandate, i.e., the INED may be a person who is not affiliated with the directors and which, during the previous two years:
(a) has not been an executive director, employed in the company, or in some other company affiliated with the company;
(b) has not owned more than 20% of the share capital, and has not been employed or otherwise hired by some other company that has generated more than 20% of its annual revenues over that period;
(c) has not received payments from the company or its affiliates nor has claimed from them the amounts whose total value exceeds 20% of its annual revenues over that period;
(d) has not owned more than 20% of the share capital of a company affiliate; or
(e) has not been engaged in the conduct of an audit of the company’s financial statements.
By default, in the case of public companies the board of directors is required to convene and hold at least four regular meetings annually.
Also, public companies are required to have an audit commission in charge of auditing policies, standards, and matters within the company (including in the case of the two-tier system).
7.2. Two-tier system
The two-tier system takes the division of functions and authorities between the executive and the non-executive directors to a further extent, by introducing a supervisory board as a separate body (along with a shareholders assembly). The operational governance is divided into two bodies as follows:
- The executive board of a public company consists of at least three executive directors, appointed by the supervisory board. The functions of the executive board parallel the ones within the one-tier system, i.e., they are deemed as statutory representatives of the company and oversee day-to-day business activities and management of the company. The requirements for executive board members’ appointments are the same ones applicable to the appointment of executive directors within the one-tier system. One of the executive directors may also be appointed to the position of the general director (CEO);
- The supervisory board consists of three or more uneven number of members appointed by the shareholders’ assembly, and they may not be (i) executive directors or procurators of the company and (ii) employed in the company.
The supervisory board would be authorized to supervise the work of the executive board, propose the business strategy, and monitor its execution. Supervisory board members need to fulfill conditions for the appointment of directors within the one-tier system (stated in 7.2.1). Symmetrically to the INED within the one-tier system, public companies need to have an independent supervisory board member who would need to fall under the scope of the same requirements applicable to the INED.
7.3. Code Corporate Management
Public companies conducting trade at BELEX need to either (i) adopt a Code of Corporate Management (CCM), or (ii) issue a statement on the application of other company’s CCM.
It should be noted that the latest amendments to the Companies Law introduced a duty for a public company to adopt a remuneration policy for its directors and supervisory board members.
8. Ongoing Reporting Obligations (Life as a Public Company)
8.1. Annual and interim financials
The issuer has the following obligations in relation to the annual and interim financials:
A public company needs to (i) prepare and make its annual report publicly available, and (ii) file it to the SEC and the regulated market or MTF, if its securities are admitted to trading. This needs to be done at the latest four months after the end of each business year (and needs to ensure that the annual financial report remains publicly available for at least ten years after the publishing date).
The annual report contains:
- annual financial statements with auditor’s report;
- annual report of operations of the company;
- responsibility statements made by persons responsible for the making of the annual report;
- other important information (e.g., capital structure, direct and indirect shareholdings, restriction on transfer of securities, information about shareholders agreements, certain change of control agreements, etc.).
A public company needs also to publish the complete decision on the adoption of the annual report, along with the decision on the distribution of profit or coverage of the loss, if these decisions are not an integral part of the annual report.
Also, in the case of acquisitions of treasury shares, the annual report should contain information on such acquisitions.
A public company needs to prepare semi-annual reports, as soon as possible and at the latest within three months following the completion of the first six-month period of the business year, make them publicly available, and file it to the SEC and regulated market (and needs to ensure that this report remains publicly available for at least ten years after the publishing date).
The semi-annual report should contain:
- condensed financial statements;
- condensed management’s report on business operations;
- a statement made by the persons responsible for the preparation of the semi-annual report;
- auditor’s report (if any).
A public company whose securities are listed on the listing segment of the regulated market is required to prepare quarterly reports, make them publicly available, and file them to the SEC and regulated market, within one month following the end of each quarter (and needs to ensure that this report remains publicly available for at least ten years after the publishing date). These reports should contain information necessary for the semi-annual reports.
Duties regarding the annual, semi-annual, quarterly reports and annual information on published information, do not apply to certain types of public companies (e.g., SMEs do not have a duty to prepare quarterly reports).
8.2. Ad hoc disclosures
The law provides for several ad hoc disclosure which needs to be made:
- Additional information. The public company needs to inform the SEC and regulated market or MTF of any change regarding its securities (depending on the type of securities). Also, BELEX may require additional information to be provided.
- Reporting on significant changes in shareholding.
Generally, all persons must make appropriate disclosures once they acquire significant shareholdings in public companies (i.e., acquisition of shares or relevant financial instruments).
Once such persons notify the public company about the change in significant shareholding, the public company must disclose such change within three working days as of the receipt of the notice.
The public company needs to, in case there is a change in the number of voting shares, at the end of each calendar month, for the purpose of calculating the relevant shareholding thresholds, disclose to the public the information about the changes and the new total number of voting rights and the value of the share capital.
- Treasury shares. If a public company acquires or disposes of its own voting shares, it must make public the proportion of its own shares, as soon as possible, but not later than four trading days following such acquisition or disposal of the voting rights.
- Other information. The public company needs to ensure that the information necessary to enable shareholders to exercise their rights are available.
- Inside information. The public company needs to inform the public as soon as possible of inside information which directly concerns the issuer.
- Foreign issuers. To a certain extent, the foreign issuer is required to comply with disclosure requirements provided by the Law.
The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.