The CNMV asks listed companies with little floating capital to improve their liquidity | Financial markets

The CNMV is urging Spanish listed companies with little free float to improve the liquidity of the value. The supervisor, according to market sources, is conveying to issuers the convenience of exploring formulas to increase it. These are not binding demands or requests, but rather guidelines with a view to improving the functioning of the Stock Exchange, given the concern of the Commission (and other market actors) about the situation of some securities with little stock trading and the consequences of this situation on the minorities.

The most aggressive alternative to avoid a strangled value is the launch of an exclusion takeover bid, which also implies a series of demands to guarantee the rights of small shareholders, such as justifying the price paid in a report prepared by a third party. But the solution can also go through other means: either through the signing of a liquidity contract with a securities firm or by placing a part of the capital on the market, a “mini IPO”, as it is called in stock market slang. This was the formula used by Enel in 2014 to provide liquidity to Endesa: after taking control of 92% of the electricity company, it lowered its percentage to 70%.

The lack of liquidity works against small investors. The narrow price discourages purchases by large funds (since they may have difficulty selling), so the stock tends to trade at a discount. Likewise, in companies with little floating capital, the influence of minorities is almost insignificant, since the control of the board and the shareholders’ meeting by the dominant one is almost total. “In these situations, the minority’s room for maneuver is minimal. In the case of a takeover bid, the ability to negotiate the price is zero, and on a day-to-day basis the sale of the security is also complicated, because if little money is moved, a short order sinks the prices,” explains a manager. “As the free float goes down, the retailer loses.”

Market sources indicate that the supervisor is concerned about the low liquidity of some companies, mainly small and medium capitalization, and that it has maintained contacts with the main stock trading platforms: BME, BME Growth and Portfolio, as well as financial entities. and venture capital funds. “The objective is part of the European strategy of the Capital Markets Union, which aims to increase non-bank financing of companies, particularly small and medium-sized companies,” these sources indicate.

The supervisor would be working with a threshold of 10% of free float as a reference. It is, in fact, the minimum percentage of market listing that the European Union will require for IPOs, according to the market regulations currently being processed. The European Commission’s proposal involves lowering this level from the current 25% to 10% as a way to stimulate IPOs. These regulations, however, do not contemplate rules linked to the liquidity of securities that are already listed. In the Spanish market there are, according to Bloomberg data, four securities that have less than 10% of their capital in the market (Squirrel Media, NH Hotel Group, FCC and Montebalito). Likewise, seven other values ​​are between 10% and 20%. These calculations include participations in investment funds or other shareholders that, because they are less than 3%, are not declared to the CNMV.

One of the most famous cases has been that of NH Hoteles. The company is 96% controlled by the Thai group Minor, which after trying to carry out a delisting takeover bid, the terms of which were not accepted by the CNMV as the price offered was not considered equitable, proposed to the minorities to acquire their shares for a period of time. month at market prices, without subsequently undertaking a delisting from the Stock Exchange.

The protection of minorities has also been planned for other operations: Barón de Ley, where the CNMV forced the controlling shareholder to launch a takeover bid, Mazuelo Holding, which tried to take the company private after having previously denied it, and Prosegur. As a result of this case, some investors who were already very active with Barón de Ley have demanded changes in regulations after the takeover bid launched by Helena Revoredo, considering that the objective of the transaction is to corner minority shareholders to facilitate a future listing.

Economía modified the market regulations three years ago to reinforce the protection of minorities, raising to 75% the minimum percentage of capital necessary to promote delisting after a takeover bid, a change promoted by the CNMV to prevent a shareholder of control corners the minorities. The change came after KKR and its partners achieved the delisting of Telepizza from the Stock Exchange based on just over half of the capital.

And, although the CNMV’s focus is on smaller securities, according to market sources, within the Ibex 35 the case of Naturgy stands out. Although its free float is 12.99%, the entry of IFM and the increase in Criteria’s participation have restricted the shares that move freely on the Stock Market. The market is expectant about the possibility that the departure of one of the shareholders could lead to an increase in the liquidity of the security.

In fact, the low floating capital of the energy company has motivated its exclusion from the MSCI indices, as explained by the index manager himself. The decision that has aggravated the energy company’s stock market fall, to the extent that the funds that replicate these selective ones must sell the shares. The exit from the index, which also affected another value in a similar situation, Acciona Energía, with 17% of capital on the Stock Market.

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