Conducting an IPO in Montenegro

Conducting an IPO in Montenegro is of strategic importance for commercial entities operating in the economic space of the Balkan Peninsula and aimed at regional expansion and subsequent international scaling of business operations. Conducting an Initial Public Offering (IPO) in Montenegro ensures an influx of long-term investments, contributes to the formation of a sustainable corporate image, and an increase in the issuer's capitalization.

From an economic point of view, going public through an IPO in Montenegro can be considered an effective tool for mobilizing investment resources, especially for business entities in strategically important sectors such as energy, tourism, high-tech and telecommunications solutions. The legal regulation of the IPO procedure in Montenegro shows a steady trend towards harmonization with EU directives, which in turn has a positive impact on legal certainty, transparency of corporate actions and protection of shareholders' rights, especially transnational investors interested in long-term participation in the capital of issuers operating in this jurisdiction.

IPO Regulation in Montenegro

In order to conduct an IPO in Montenegro, the provisions of the Capital Market Law and the internal regulations of the Montenegrin Stock Exchange, which govern the inclusion (admission) of financial instruments to trading on the organized market, must be observed. The IPO process in Montenegro is supervised by the Securities and Exchange Commission of Montenegro (abbreviated SEC Montenegro).

SEC Montenegro is implementing the adaptation of national regulations to the fundamental EU regulations, including Directive 2014/65/EU on markets in financial instruments (MiFID II) and Regulation (EU) No 2017/1129 of the European Parliament and of the Council on the prospectus to be published for an offer to the public or for admission to trading of securities in Montenegro. Such legal harmonization with European legislation ensures an increased level of confidence on the part of institutional and private investors, minimizing regulatory barriers and strengthening the attractiveness of the Montenegrin stock market.

Montenegroberza performs the functions of the organizer and operator of the following segments of the organized securities market:

• A regulated market, which includes a stock market with Prime and Standard segments, and a free market.
• Multilateral Trading Facility (abbreviated MTP ME).

The process of initial public offering of shares in Montenegro is a complex transformation of an economic entity from the status of a private enterprise to a public joint-stock company, the shares of which are admitted to circulation on the organized securities market. The specified mechanism of structural reorganization is accompanied by an initial emission offer of equity securities to an unlimited number of investors, which is aimed at mobilizing significant amounts of capital.

Conducting an initial public offering (IPO) in Montenegro requires compliance with prudential norms and regulatory requirements provided by national and cross-border legislation in the field of capital markets, including mandatory disclosure of comprehensive information on the financial position of the issuer, the structure of its assets and liabilities, corporate governance, and the risks associated with investing in relevant securities. Investment banks, acting as underwriters accompanying the issue, play a significant role in ensuring the legal and economic viability of this process. Their functions include developing and implementing a strategy for the company to enter the Montenegrin Stock Exchange through an IPO, creating a Prospectus, assisting in determining the fair market value of shares, and conducting a road show.

Conducting an IPO in Montenegro : stages

Entering the regulated capital market of Montenegro through an IPO is a complex and multi-stage procedure associated with both potential investment benefits and certain costs and risks. Despite the existence of regulatory barriers, as well as obligations arising from the need to comply with legal requirements in the field of corporate governance, disclosure of information and protection of minority shareholders, the process of conducting an IPO in Montenegro can be strategically expedient for joint-stock companies planning to expand.

The procedure of initial public offering (IPO) in Montenegro provides issuers with a strategic opportunity not only to attract large amounts of capital from external investors, but also to significantly increase market capitalization. In this regard, a comprehensive analysis should be carried out, covering the legal, procedural, organizational aspects of the process of entering the Montenegrin stock market through an IPO, including the requirements for the Prospectus, the rules for the admission of securities. Below I detail the main aspects, stages and legal nuances associated with the entry of a company to the stock exchange through an IPO in Montenegro.

The process of initial public offering in Montenegro requires corporate restructuring, including adjustment of the legal form, internal control mechanisms and other important aspects of corporate governance in order to comply with the regulatory requirements for public issuers on the Montenegrin stock market. To launch an IPO in Montenegro, it is necessary to conduct a legal audit of corporate documents, including charters and internal regulations, analyze potential litigation, obligations to third parties and issues related to intellectual property rights. Comprehensive due diligence of the company before conducting an IPO in Montenegro helps to identify and minimize possible risks.

Public sale of shares on the stock market of Montenegro is carried out by establishing contractual relations with banks accredited as underwriters. The appointment of a lead underwriter with the authority of general management and coordination of all stages of the issue is a mandatory requirement in the context of an IPO in Montenegro. The involvement of additional managers is carried out in order to distribute individual functional responsibilities, which is dictated by the need to integrate industry expertise into a multi-faceted approach to the implementation of the project.

The underwriters are responsible for conducting due diligence of the issuer before entering the IPO market in Montenegro, which includes assessing possible regulatory, legal and tax risks, monitoring the corporate governance structure, auditing financial statements and checking the compliance of the issuer's activities with applicable national legislation and stock exchange requirements. In addition, the underwriters are responsible for preparing the Prospectus.

In the process of launching an IPO on the Montenegro Stock Exchange, one of the responsible procedures is the preparation of the Prospectus. It serves as a fundamental document that guarantees the appropriate level of disclosure required for making informed investment decisions. It is important to note that an initial public offering (IPO) in Montenegro is only allowed after receiving approval from the national Securities Commission (SEC MNE). Based on the results of the examination, the regulator makes a decision on admitting the issuer to the listing. The next stage of an IPO in Montenegro is the registration of the issuer on Montenegroberza, where the terms of the initial placement and the start date of trading are determined.

The process of admitting securities to trading on the Montenegro Stock Exchange is characterized by a short-term primary trading phase, the duration of which, as a rule, does not exceed several business days. Entering the stock exchange through an IPO in Montenegro requires the issuer to make mandatory disclosure of both financial and non-financial data, interact with investors and comply with the rules inherent in public corporations.

Entering the Stock Market through an IPO in Montenegro : Admission Conditions

Admission to IPO on the Montenegrin stock market is limited to corporate entities registered in the form of a joint-stock company (Akcionarsko društvo, abbreviated AD), operating in accordance with the legislation of Montenegro or an EU member state or other international association to which the relevant mutual recognition regime applies. The procedure for integrating financial instruments into the infrastructure of the regulated market is initiated by filing an application for inclusion, which specifies the intended affiliation of the instrument to the relevant market segment.

In order to ensure the admission of securities to organized circulation on the stock market, the issuer is obliged to comply with a number of conditions established by regulatory acts, the fulfillment of which confirms its legal capacity and reliability as a subject participating in the public circulation of financial instruments:

• Submit to the authorized bodies or the stock exchange complete financial statements prepared in accordance with international standards, as well as the opinions of an independent auditor for the last three reporting years or for the entire period of actual existence, if it is shorter than the specified period.
• Ensure that at least 25% of the securities of the relevant class, for which an application for admission to listing on the Montenegro Stock Exchange is submitted, are placed through a public offering conducted in accordance with applicable law.
• Have no history of overdue payment of income to shareholders in the form of dividends or overdue payments on principal debt and accrued interest on previously placed financial instruments.
• Not to have any restrictions on the free circulation of financial instruments or the rights of their holders, regardless of the grounds for such restrictions. The issuer is obliged to accept and apply the provisions of the Corporate Governance Code of Montenegro, and submit to the stock exchange a completed Questionnaire on compliance with the provisions of this Code.
• Ensure that an annual assessment of the degree of implementation of the provisions of the Corporate Governance Code is carried out. The results should be posted in the public domain on the official web portal of the stock exchange.
• Have an unqualified, unadverse or undisclaimed auditor's report on financial statements subject to mandatory audit in accordance with applicable law.
• Have a properly organised investor relations function, for which at least one responsible person with proven professional competence and experience in the field of information interaction with current and potential investors must be appointed.

Based on the degree of compliance of the issuer with the established requirements of a specific segment, the executive director makes a decision on admission of the instrument to trading in the specified segment. If the declared instrument does not meet the established criteria of any of the segments of the regulated market, such an instrument is subject to inclusion in the MTP ME. The conditions for admission to an IPO in Montenegro for various market segments oblige companies to comply with established regulatory requirements, which vary depending on the scale of the business, the level of financial stability, liquidity and transparency of reporting.

Prime Market is a segment intended for large issuers with stable and reliable financial indicators, high liquidity and significant turnover volumes. The Classic Market segment is aimed at medium-sized companies.

In order to enter the stock exchange by launching an IPO in Montenegro, the issuer must have at least 25% of shares in free float, and this percentage of shares must be distributed among at least 10 shareholders. The issuer must operate with a profit of at least 500 thousand euros for at least two of the last 5 years. Its market capitalization must exceed 500 thousand euros. The company applying for an IPO in Montenegro in this market segment must have an audit committee, one member of which is independent. The issuer must not have measures applied for violation of the Stock Exchange Rules for one year prior to the last revision of the conditions for the standard market.

To be included in the free market, the issuer must have at least 10% of its shares in free circulation. It must prove that it has a website in the Montenegrin language and regularly fulfill its financial obligations to the stock exchange. The issuer's account must not be blocked for more than 60 days. After admitting a financial instrument to trading on an organized (regulated) market, the issuer is obliged to ensure proper and timely disclosure of publicly significant information, including information that has the nature of insider information, in accordance with the requirements of the legislation on the securities market.

In order to enter the Montenegrin stock exchange through an IPO, a legal entity is required to prepare and submit to the authorized supervisory body, the Securities Commission of Montenegro, a Prospectus containing information on the legal status of the issuer, financial and economic indicators, ownership structure, investment risk levels, issue objectives and growth prospects. After receiving permission through an official resolution of the Commission, the company acquires the right to publicly place shares among an unlimited number of investors.

As a corporate lawyer with many years of experience advising multinational and local clients, I provide legal advice to companies planning to enter the Montenegrin stock market through an IPO. My areas of expertise include developing and implementing a roadmap covering corporate structure reorganization, compliance with disclosure requirements, and aligning internal policies with public offering regulations. I act as an authorized representative of clients in all interactions with the Securities Commission, the Montenegrin Stock Exchange and other participants in the IPO process in Montenegro, ensuring compliance with regulatory standards and minimizing regulatory risks.

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Conducting a Roadshow during the IPO Process in Montenegro

When planning to launch an IPO in Montenegro, you should know that from a legal point of view, a roadshow is a mandatory stage of a pre-prospect marketing campaign, during which pre-sounding and book-building are carried out - receiving feedback from professional investors on the parameters of the future placement. The roadshow falls under the provisions on the prevention of selective disclosure and the use of inside information in the context of EU Regulation No. 596/2014 on market abuse (Market Abuse Regulation, MAR), implanted in the national legislation of Montenegro.

Conducting a roadshow usually includes several stages:

1. The preparatory stage includes legal due diligence, preparation of an investment memorandum and an Offering Prospectus approved by the regulator.
2. Determination of the circle of participants (selection of potential institutional investors who meet the criteria of qualified (professional) market participants).
3. Conducting meetings both in a one-on-one format and in the form of group presentations, with mandatory recording of all presented materials and questions and answers (Q&A).
4. Documenting feedback to determine price range and production volume.

All road show materials are subject to translation into either Montenegrin or English, depending on the category of addressees and the requirements of local regulators. The format may include both printed presentations and multimedia presentations, including using online platforms.

When conducting an IPO in Montenegro, before the roadshow, the issuer has the right to present to investors a preliminary prospectus — a preliminary version of the Prospectus, which does not contain the final parameters of the issue, but includes key information about the business model, risks, corporate governance and the intended use of the funds raised. Compliance with the legislation on market abuse plays a special role. The transfer of insider information even to a limited circle of institutional investors without signing an NDA (Non-Disclosure Agreement) and its subsequent use in making an investment decision may qualify as a violation of MAR, entailing administrative and criminal liability.

In the process of preparing and conducting a roadshow, the following play a key role:

• Underwriters who are responsible for organizing meetings, coordinating with investors, collecting and analyzing feedback, and subsequently forming the order book.
• Legal advisors who ensure that all activities comply with legal requirements, including cross-border marketing, especially if the roadshow involves international investors (e.g. from the EU, UK or EEA countries).

Timing of IPO in Montenegro

The IPO process in Montenegro takes from 6 to 12 months, counting from the date of the shareholders' decision to start the public offering until the moment of listing of shares on the stock exchange. The duration of the procedure directly depends on the level of corporate preparation of the issuer, the correctness and completeness of the prepared documentation, the promptness of the regulator's review of the submitted Prospectus.

Transaction costs for conducting a public offering of shares on the Montenegrin market include costs for legal expertise, providing underwriting functions, and conducting an independent audit. Also included in the total amount of costs are consulting support for the IPO process in Montenegro, costs for the preparation and approval of the Prospectus, established registration and exchange fees. The total amount of the above costs, as a rule, ranges from 5 to 10% of the amount of funds raised through an IPO in Montenegro.

The launch of an IPO project in Montenegro can potentially be accompanied by raising funds through participation in international grant programs. In particular, implementing policies to support sustainable economic growth, financial support can be obtained from the European Investment Fund (EIF), the European Bank for Reconstruction and Development (EBRD) and other institutions, subject to compliance with the selection criteria provided for projects in the areas of digitalization, sustainable development and environmental transformation.

Conducting an Initial Public Offering (IPO) in Montenegro : Benefits

By implementing and adapting European directives and international norms into the national legal system, a legal environment has been created that facilitates the effective protection of investors' property interests and compliance with the principle of legal certainty. An IPO in Montenegro is a mechanism for integrating a company into the infrastructure of the European stock market, through which systematic access to a diversified circle of investors is ensured.

The decision to go public in Montenegro is usually made by issuers in order to implement a long-term corporate strategy aimed at diversifying the investment portfolio and increasing capitalization. Proceeds from the placement of securities are used as a financial instrument to expand the production base, develop new markets, and strengthen the financial stability of the joint-stock company.

Conducting an IPO on the Montenegro Stock Exchange helps to intensify the information disclosure processes and ensures proper compliance with the standards of information disclosure, which increases the confidence of potential investors and strengthens the position of the issuer as an object of long-term investment. The sale of shares through an IPO in Montenegro serves as a tool for the effective monetization of previously made investments for shareholders. By selling shares in the share capital on the official stock exchange, shareholders can release capital and redistribute previously fixed financial resources concluded in the form of corporate rights.

Buying Shares Through IPO in Montenegro : Tax Aspects

An initial public offering of shares in Montenegro requires taking into account fiscal circumstances that have a direct impact on the level of investment interest in the issue and on the financial indicators of the issuer. Conducting an initial public offering of shares in Montenegro does not exempt the company from taxation at the corporate level. The tax rate on profits of legal entities is 9% (one of the most competitive among European countries). When distributing dividends among individuals, the tax rate is 15%, unless otherwise provided by international agreements. The Republic of Montenegro has over 40 bilateral agreements on the elimination of double taxation, which allows for a significant reduction in tax withholdings in transactions related to the payment of dividends and capital gains.

Conclusion

Conducting an IPO in Montenegro is the process of a joint-stock company entering the open market with the aim of raising funds from external investors through a public offering of shares or other financial instruments. For potential investors, an IPO in Montenegro opens up the opportunity to acquire liquid assets in the authorized capital of a company that is actively developing and seeking to strengthen its position in the market.

Conducting Initial Public Offerings in Montenegro is a strict procedure that includes full and reliable disclosure of information about the issuer, its financial situation and corporate structure. In this article, I explain the general characteristics of the main stages of conducting an IPO in Montenegro.

In practice, it is advisable to request professional legal support for the IPO process in Montenegro, which will allow you to effectively manage emerging legal risks and ensure compliance with the requirements of current legislation.