Markets
Belgium: the FSMA warning on convertible financing
Belgium permits a convertible priced against the market at each conversion, and companies on Euronext Brussels use them. It is nonetheless a constrained market: on 1 February 2023 the FSMA published a communication naming the practice, counting nine supervised issuers relying on it, and asking boards to think carefully before signing. The gate is procedural, not a pricing formula.
Key takeaways
- The regulator has already described this exact instrument. FSMA Communication FSMA_2023_02, 1 February 2023, identified 9 companies under FSMA supervision relying on such convertible bonds for their financing needs, most of them biotech or medtech issuers.
- The FSMA recorded what the discounts looked like. On the Belgian market, the FSMA wrote, the discounts “are usually around 5 to 8% but can in some cases reach 20%”. That is a regulator's observation of other people's deals as at February 2023, not an indication of terms.
- The FSMA said what the funds do next. “As soon as the conversion has taken place, the investment funds sell the shares on the stock exchange. Most do not intend to become shareholders of the company.”
- Directors carry the decision personally. The FSMA asks companies and their directors to think carefully “and to be aware of the responsibility they are assuming by doing so”, which changes who has to be persuaded before a Belgian deal signs.
- Below par is still the hard floor. Article 47 of Directive (EU) 2017/1132: shares may not be issued at a price lower than their nominal value or accountable par.
What the FSMA published, and what it did not do
Most market pages have to infer a regulator's attitude. Belgium does not, because the FSMA wrote it down. Its communication of 1 February 2023 describes a financing in which a company issues convertible bonds to a foreign investment fund, drawn in tranches, converting into new shares at a discount to the recent market price. It records that the funds receive high fees and an attractive conversion price, and that they sell on conversion rather than staying on the register.
What the FSMA did not do matters as much. It did not prohibit the instrument, cap the discount, or make the transaction subject to prior approval. It asked boards to think, and made clear that the thinking is theirs to defend. That converts a financing question into a governance one, and moves the decisive conversation from the CFO to the full board. The result is a market where the structure is lawful, visible and unpopular with its own supervisor — neither closed nor permissive.
Why Belgium is not a pricing-floor market
Several European regimes stop this structure with arithmetic: a minimum issue price computed from a trailing average, which a price that refixes downward can never satisfy. Belgium is not one of them. No mandatory market-average floor was found for a listed Belgian company issuing to a named investor, and the FSMA's own account of routine discounts of around 5 to 8% would be hard to reconcile with one. Price is not where a Belgian deal is decided.
Where it is decided is the corporate act. A Belgian naamloze vennootschap or société anonyme issuing to a chosen investor has to cancel the shareholders' voorkeurrecht or droit de préférence in that investor's favour, either at a general meeting or under a standing toegestaan kapitaal or capital autorisé authorisation. That step is supported by a bijzonder verslag, the board's special report, and by a report from the statutory auditor — documents that name the beneficiary and justify the terms in advance, and which shareholders read before they vote.
| Step | What Belgium requires | What the structure assumes |
|---|---|---|
| Cancelling the voorkeurrecht | A resolution in favour of a named beneficiary, with a special board report and an auditor's report | An investor named in the documents |
| Regulator posture | A published communication asking boards to justify the choice | A quiet bilateral negotiation |
| Issue price | No market-average floor found; nominal value is the floor | A discount to a recent average, reset at each conversion |
| Capacity | Finite in amount and expiring on a date fixed in the authorisation | Drawdowns over several years |
| Who signs off | The board, on the record, with its responsibility flagged by the FSMA | Management and the finance function |
| Structural summary only. Confirm the article numbering with Belgian counsel. | ||
Nominal value, and the arithmetic a micro-cap does first
The one floor that certainly applies is the European one. Article 47 of Directive (EU) 2017/1132 provides that “shares may not be issued at a price lower than their nominal value, or, where there is no nominal value, their accountable par”. A company whose shares have fallen far enough to want this financing may be trading near that figure, and if it is, the conversion mechanic breaks at the bottom of the range rather than the top. Reducing the accounting par is a separate corporate action, and it comes first — see Germany, where the par floor is the binding constraint.
When the shares can be dealt
There is no Belgian holding period and no resale registration concept, so once the conversion shares are admitted to trading on Euronext Brussels they rank with the existing line. That is the opposite of the US position set out on Rule 144 and restricted securities, and it is why a Belgian investor's exit is measured in trading days rather than in filings. The gate before admission is the prospectus analysis, which the EU Listing Act exempts below 30% of the fungible class already admitted over 12 months. Read that alongside convertible notes for listed issuers and equity facilities: the instrument is available, and the work is in the authorisation and the board minute.
General information, not legal advice. The Code of Companies and Associations was not read in primary form for this page, so no article number is given for the preferential subscription right, the special report or the authorised-capital cap. The FSMA figures are as at 1 February 2023 and may have moved. Take advice from qualified Belgian counsel before acting.
Send the authorisation wording, its expiry and the accounting par and we will say what shape is workable on Euronext Brussels.
Sources
- FSMA — warning on issues of convertible bonds, 1 February 2023
- FSMA Communication FSMA_2023_02
- Directive (EU) 2017/1132, Article 47
Financing a Belgian listed issuer: frequently asked questions
Has the FSMA banned convertible bonds with a variable conversion price?
No. On 1 February 2023 it published a communication describing the practice among 9 companies under its supervision, most of them biotech or medtech issuers, and asked listed companies and their directors to think carefully before they issue these sorts of convertible bonds. It is a warning and a set of expectations, not a prohibition.
Does Belgian law floor the conversion price at a market average?
No mandatory market-average floor was found for a listed Belgian issuer, and the FSMA's own description of discounts of around 5 to 8%, reaching 20% in some cases, would be difficult to square with one. The floor that certainly applies is nominal value: shares may not be issued below nominal value or accountable par.
What actually limits the size of a Belgian facility?
The authorisation. Issuing to a named investor requires the preferential subscription right to be cancelled in that investor's favour, and the authority to do so is finite in amount and expires on a date. A multi-year drawdown outlives it, so the renewal calendar decides how large a facility can be before the discount is even discussed.
Are shares issued on conversion tradable on Euronext Brussels?
Yes, once they are admitted to trading. Belgium has no holding period and no resale registration concept, so the investor's shares rank with the existing line. The gates sit before that point: the corporate steps that create the shares, and the prospectus analysis on the follow-on admission.
If this is about a live situation
The pricing floor is gone in Belgium; what replaced it is a board that has to justify the issue price in a published report, with the FSMA on record about this instrument. If that is the decision in front of your board, read the structures before the terms.