- The Canadian Securities Administrators (CSA) have opened the door for certain public companies to issue equity without a prospectus
- Effective November 21, 2022, the Listed Issuer Financing Exemption allows qualified Canadian companies to issue C$5-C$10 million in equity and warrants without a prospectus, required holding period or the involvement of a registered dealer
- Both accredited and retail investors can participate in these financings, which democratizes access to Canadian capital markets
- Issuers under the exemption may benefit from reduced costs and regulatory risk, as well as access to a broader pool of investors
The CSA has opened the door for certain public companies to issue equity without a prospectus.
After last November’s amendment to National Instrument 45-106 – known as the Listed Issuer Financing Exemption (LIFE) – listed Canadian companies can issue C$5 million (or 10 per cent of market cap) up to C$10 million in equity and warrants without a prospectus, required holding period or the involvement of a registered dealer to both accredited and retail investors. Flow-through offerings are also permitted, which should attract particular interest from junior explorers.
Under the LIFE exemption, financings do not have to be reviewed by a securities regulatory authority, likely minimizing costs, wait times and execution risk, all of which can be significant to companies of all sizes with short-term capital needs.
To determine suitability, investors will instead rely on a company’s continuous disclosure track record, accessible through SEDAR, as well as a short offering document disclosing all material facts about the company and the offering.
Retail investors, regardless of income, holdings or assets, stand to benefit from access to allocation opportunities previously limited to accredited investors and subject to a four-month hold period under NI 45-106. These equity offerings often come at a discount to market prices to compensate for volatility during the holding period, granting investors added upside potential in advance of wider market recognition and sometimes even institutional interest.
The exemption is especially relevant to The Market Herald Canada’s investor community, as it removes a barrier to supporting the smaller-cap companies readers tend to focus on while maintaining sufficient regulatory rigour.
Investor protection measures in place within the LIFE exemption include:
- Maintaining active business operations – i.e., no capital pool companies- while being in good standing on a recognized exchange for the prior 12 months
- An upper limit on financings of up to 50 per cent of outstanding listed shares during a 12-month period
- Companies must determine they have sufficient funds to pursue business objectives for at least 12 months following a financing
- Additionally, proceeds cannot be used for major acquisitions or restructuring, which would require more detailed financial statements and/or shareholder approval under prospectus regulation
- The exemption also imposes primary offering liability against the issuer – and in many cases, company directors and signing officers – as well as secondary market liability in the event of a misrepresentation in the offering document or the previous 12 months of continuous disclosures
While discounts may decrease somewhat due to their widespread availability, they are likely to persist given the higher risk of LIFE’s reduced oversight compared to existing prospectus regulation and its appeal to younger, growth-dependent companies for whom capital is scarce, and standard financing compliance’s multiple filings and review stages are unnecessarily burdensome.
The pool of available opportunities has proven to be diverse, as evidenced by recent LIFE-financings by Guanajuato Silver, Quebec Nickel, Odd Burger, Plurilock Security, Baselode Energy, Hank Payments, Alkaline Fuel Cell Power, Bright Minds Biosciences and Revive Therapeutics, among many others.
LIFE’s clearer fundraising path levels the playing field in Canadian capital markets, increasing retail investors’ potential for sizeable long-term returns if their due diligence plays out as planned. To that end, readers can consult our Deal Room for the latest news on capital raises by Canadian public companies.
Sources
“New prospectus exemption: listed issuers”. Norton Rose Fulbright.
“No prospectus, no problem: the Listed Issuer Financing Exemption allows for free trading securities without a prospectus”. BLG.
