Belgian Securities Regulator: Beware The Risks Of Certain Convertible Bonds

Published date27 March 2023
Subject MatterFinance and Banking, Corporate/Commercial Law, Financial Services, Directors and Officers, Shareholders
Law FirmJones Day
AuthorMr Matthieu Duplat, Paul Van Hooghten, Julien Slos and Alicia Ghislain

In Short

The Situation: Several Belgian-listed companies have turned to very dilutive instruments (e.g., certain types of convertible bonds and equity lines) as a source of financing, which raises risks for investors and the companies issuing these.

The Result: The Belgian Financial Services and Markets Authority ("FSMA") warns investors that such financial instruments can significantly negatively impact existing shareholders by way of dilution and negative pressure on the share price. It also emphasizes relevant company reporting obligations and directors' liability.

Looking Ahead: The risks of very dilutive financial instruments have caught the attention of financial regulators in Europe, who will likely continue to scrutinize these. Listed companies and their directors must exercise particular caution before issuing such dilutive financial instruments, including awareness of their obligations and potential liabilities in using such type of financing.


The Belgian FSMA issued a warning on February 1, 2023, regarding dilutive instruments, such as certain types of convertible bonds and equity lines. In France, similarly, the financial regulator AMF issued a warning in March 2022, following an upsurge in complaints from individual shareholders who lost a large part of their investments in listed companies.

A New (Risky) Trend

Ordinarily, a convertible bond is a financial instrument that resembles a regular bond, with the exception that bondholders are entitled to convert the bonds into shares of the issuer (subject to a specific timeframe/conditions). Upon such conversion, the value of the bond is converted into shares in exchange for the payment of a conversion price instead of recovering the principal in cash. The conversion price is set at the time of issuing the bond and usually reflects a premium compared to the then-prevailing market price.

However, a new trend has emerged on the market for the issuance of convertible bonds with a conversion price determined at the time of the conversion, embedding a discount on the then-prevailing market price. The FSMA has observed discounts from 5% to 8% and up to 20% on the Belgian market.

This scheme was facilitated by the entry into force in 2019 of the Belgian Code of Companies and Associations ("BCCA"), which abolished the former mandatory minimum issue price required when the preferential subscription right is cancelled in favor of one or more specific persons.

Most Belgian listed companies that...

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