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General insurers protect finance raising in Spain

Pile of multi-coloured 100-share stock certificates

Raising finance during challenging times can be tough and many firms in Spain are increasingly looking to the Alternative Stock Market or MAB. As the possibility of claims has risen dramatically these firms face increased risks but Fernando Claro explains how the Spanish general insurance market has risen to the challenge to protect them.

The Alternative Stock Market or MAB, the Spanish relative of the British Alternative Investment Market, has become a real alternative for many companies in Spain following the global economic crisis.

In spite of its short history - it only opened to companies in 2008 -, the MAB is currently a favoured source of finance for medium-sized Spanish or foreign enterprises, which see it as a way of drawing resources that meet their business objectives and long-term growth plans.

Simpler procedures
Among its advantages to growing firms are more pragmatic appraisals without being subject to the vagaries of the stock exchange, faster and simpler procedures than the traditional stock exchange and, last but not least, the raising of finance during challenging times for financial institutions.

However, getting listed on the MAB is not a risk-free affair. Many companies wishing to trade on the MAB face a world of risk previously unknown to them. For example, they have to meet new reporting and transparency requirements to which they are unaccustomed, meaning there is a strong chance that their documentation may contain inadvertent errors.

Risk of claims
Given the current economic situation in Spain, the risk of claims has risen dramatically as investors, both institutional investors and individuals, are now more willing to consider legal action for recovering their investment in the event of sustaining consolidated losses.

Furthermore, the company's advisers - the registered consultant and the liquidity supplier - can also lodge a claim if a damaged party files a claim against them. Until recently, finding a solution to these risks had remained unresolved.

MAB policy
But responding to a need in the Spanish market and in order to assist medium-sized and family-owned businesses secure financing through the management of their risks, an ‘incorporation to MAB policy' is now available. This pioneering insurance product protects those who undersign a prospectus filed with the CNMV (the supervisory body), or the information document submitted to the MAB, for the liabilities arising from errors, omissions, inexactness or breaches contained in the prospectus or in the information document, presentations and other materials used in explanations given to banks and investors.

The policy covers out-of-court arrangements, legal defence expenses - which can be especially high in this type of claim - bonds, administrative penalties applied to individuals and advertising and PR-related expenses.

This aims to protect both the individuals undersigning the documents and the company they represent, its directors and executives and, additionally, shareholders who sell shares. The cover is particularly useful for family-owned companies in which there are family members who are shareholders but are not members of the board of the company that will be traded on the MAB.

Suitable range
Before the financial crisis, around 80% of initial public offerings on the Spanish stock market had some form of insurance protection. In order to create a policy more suited to the size of the transactions on the MAB, this policy covers a range between three and 20 million Euros and a term of four years, in accordance with the Spanish Code of Commerce, which dictates that the liability of directors and administrators does not expire until four years have elapsed following the cessation of activities.

The introduction to MAB policy will provide many Spanish firms that are considering an IPO on the MAB with the comfort and reassurance they need to progress with their plans, highlighting the key role that risk advisers have to play in economic recovery.

Fernando Claro is the private equity and mergers and acquisitions practice leader for Marsh in Spain.

 

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