The COVID-19 pandemic is having material adverse effects on the global economy, including on the Spanish financial markets. Therefore, several measures have been taken by different authorities in order to reduce the impact of the pandemic which should be taking into account by any investor who intends to invest in Spanish companies.

In this regard, following are brief legal considerations for foreign investors regarding the impact of COVID-19 on the Spanish stock markets, according to the information available as of March 24, 2020.

The Spanish Government published on March 17, 2020, a Royal Decree Law 8/2020 (Real Decreto-ley 8/2020, de 17 de marzo, de medidas urgentes extraordinarias para hacer frente al impacto económico y social del COVID-19) which includes, among others, restrictions on the direct acquisition of significant stakes by foreign investors as set out below:

• With indefinite effects as of March 18, 2020, the liberalization regime for foreign direct investments in Spain carried out in certain strategic sectors that affect public order, public security and public health has been suspended. For these purposes, any investments made by residents of countries outside the EU and the European Free Trade Association are considered to be foreign direct investments in Spain when the corresponding investor: (a) becomes the owner of a stake equal to or greater than 10% of the share capital of the Spanish company; or (b) as a consequence of the corporate transaction, legal act or business effectively participates in the management or control of the Spanish company.

• The following are the strategic sectors that are subject to the suspension of the liberalization regime for foreign direct investments in Spain:

1. Critical infrastructures, whether physical or virtual, as well as land and real estate that are key for the use of said infrastructures.
2. Critical technologies and dual-use goods, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, quantum and nuclear energy storage, as well as nanotechnologies and biotechnologies.
3. Supply of essential inputs, in particular energy, or those related to raw materials, as well as to food security.
4. Sectors with access to sensitive information, particularly personal data, or with the ability to control such information.
5. Media.

Notwithstanding the foregoing, the Government may suspend the aforementioned liberalization regime in other sectors not contemplated in this section in case they may affect public order, public safety and public health.

Therefore, foreign direct investments in Spain –as defined in the beginning of this section– that are carried out in any company, including listed companies and those companies which shares are listed on the Spanish Alternative Equity Market, that belong to any of the sectors indicated in points (i) to (v) above, will be restricted and subject to obtaining the corresponding prior administrative authorization.

• Additionally, with indefinite effects as of March 18, 2020, the liberalization regime for foreign direct investments in Spain –as defined at the beginning of this section– has been suspended in the following cases (regardless of the sector):

1. If the foreign investor is controlled, either directly or indirectly, by a government –including public bodies or the armed forces– of a third State, applying for the purposes of determining the existence of said control the criteria established in article 42 of the Spanish Commercial Code.
2. If the foreign investor has made investments or has been involved in activities with sectors that affect public order, public safety and public health in another Member State, and especially those indicated in points (i) to (v) above.
3. If an administrative or judicial proceeding has been opened against the foreign investor in another Member State, in the State of origin or in a third State for carrying out criminal or illegal activities.

Therefore, foreign direct investments in Spain –as defined at the beginning of this section– that are carried out in any company (regardless of the sector to which it belongs, including listed companies and companies which shares are listed on the Spanish Alternative Equity Market) and in which any of the cases indicated in points (i) to (iii) above concur, will be restricted and subject to obtaining the corresponding prior administrative authorization.

According to Spanish Law, the referred authorization should be granted by the Spanish Council of Ministers subject to a prior report by the Foreign Investments Board (“Junta de Inversiones Exteriores”). If not obtained in a six-month period, the required authorization should be considered as denied.

Carrying out any of the investments indicated above without obtaining the corresponding prior administrative authorization will be considered as a very serious infringement sanctioned with fines up to an amount of the transaction´s value. Besides, the investment transactions carried out without the required prior authorization will lack validity and legal effects as long as they are not legalized in accordance with the established procedure.

Notwithstanding the foregoing, in relation to foreign investments in Spain, the following should be taken into account:

1. in the current context, the Spanish Council of Ministers has authorized the urgent processing of the draft Royal Decree on foreign investment. This Royal Decree repeals the previous 1999 regulation and develops the rule on the legal regime of capital movements and economic transactions abroad, in relation to foreign investment, especially to adapt both the investment declaration regime and the suspension of investment liberalization to the current legislation;
2. in Spain, in general, there are special regimes that affect foreign investments in Spain in those sectors with specific regulations; and
3. Regulation (EU) 2019/452, of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union came into force in April 2019 and will be applicable from October 2020. This is the first measure adopted by the EU for the control of foreign investments in critical and strategic sectors, setting general criteria to be developed by the Member States that will continue to hold the power to approve, restrict or prohibit foreign investments.

Due to the extreme volatility taking hold of European securities markets (including those based in Spain), ESMA and the Spanish Securities Market and Exchange Commission (“CNMV”) have adopted the following main measures:

• Since March 16, 2020, investors who have net short positions in shares admitted to trading on regulated EU markets (in Spain, only the Stock Exchanges (“Bolsas de Valores”)) shall notify the relevant competent authority any position that reaches 0.1% of a company’s share capital or any subsequent 0.1% above that threshold (i.e. 0.2%, 0.3%, 0.4%, etc.).

• Additionally, the CNMV, in line with other countries of the EU, has prohibited the creation or increase of a net short position on shares admitted to trading on Spanish trading venues (the Spanish Stock Exchanges and the Spanish Alternative Equity Market (“MAB”)). This prohibition has an initial duration of 1 month (i.e. from March 17 to April 17, 2020, both dates included) although it may be extended for additional periods not exceeding 3 months or lifted at any time before the end of the initial period if deemed necessary.

• On March 22, 2020, the CNMV published a Q&A document regarding the scope of the agreement of March 16, which temporarily prohibits the increase of net short positions in shares in trading venues for which the CNMV is the competent authority, which will be periodically updated.

Therefore, all investors who already have net short positions or who intend to have them, should consider the abovementioned obligation and restriction before investing in shares admitted to trading on Spanish trading venues.

ESMA has published several recommendations to financial market participants, that the CNMV has assumed as its own, with regards to the COVID-19 impact, which included among others:

• To disclose as soon as possible any relevant significant information concerning the impacts of COVID-19 on any issuer’s fundamentals, prospects or financial situation in accordance with its transparency obligations under the Market Abuse Regulation.

• To provide transparency in financial reporting on the actual and potential impacts of COVID-19, to the extent possible.

Therefore, investors should be vigilant on the information that could be published by issuers following the referred recommendations in order to make investment decisions.

Additionally, the Spanish Government also included in Royal Decree Law 8/2020 a number of measures regarding the publication deadline for financial reports as set out below:

• As an exception, during the year 2020, listed companies (Spanish Stock Exchanges) may comply with the obligation to publish their annual financial report together with the corresponding audit report, within 6 months after the closing of the financial year.

• Additionally, the term for listed companies (Spanish Stock Exchanges) to publish (a) the semi-annual financial reports; and (b) the intermediate management declarations, is extended to 4 months from the end of the period to which they refer.

• During 2020, companies which shares are listed on the Spanish Alternative Equity Market shall submit the corresponding annual periodic information to the Spanish Alternative Equity Market within 6 months from the end of the financial year.

Therefore, foreign investors shall be aware that the terms for the publication of financial reports by listed companies in Spain have been extended and, therefore, investors should expect that the information on which to base their investment decisions could be delayed compared to previous years.