Spanish “loyalty shares” draw central bank criticism

The Bank of Spain has emerged as part of almost unanimous opposition to its government’s proposed introduction of so-called loyalty shares for listed companies.  

According to El Pais, in its response to a consultation on a new securities and finance bill, the central bank said it could see the potential drawbacks of the proposal much more clearly than any benefit they may bring to either issuers or shareholders.  

In essence, the loyalty share would confer an additional voting right to investors who had held the company stock for two years or more and was first mooted in 2019, drawing criticism from some investor groups.  

The bank’s comments were published alongside those from a range of other market participants and stakeholders, including the European Banking Authority (EBA).  

Among the issues cited by the stakeholders was the cementing of power of controlling shareholders over newer investors, which could infringe on their rights and ability to hold a company to account.  

Additionally, some respondents said it could act as a deterrent for new investors, meaning a company choosing to offer these loyalty shares could eventually trade at a discount.  

This could create problems when companies needed to raise capital quickly, according to Ministry of Economic Affairs, but it said the proposal could also encourage long-term shareholder behaviour.  

Referring to this point, the EBA urged caution in permitting financial institutions to issue these shares – such is their importance to the national economy – while the Ministry of Economic Affairs said to stop them from doing so would put them out of kilter with others in Europe that were able to do so. 

Another concern was raised by the association of Spanish issuers, which pointed out the impact additional shareholder votes could have in a takeover situation. The group said having a group with a louder voice than the others could force through a mandatory takeover bid. 

One of the lone voices in full support of the proposal came from National Securities Market Commission (CNMV), which suggested the move would level the playing field with other countries offering these benefits to long-term investors.  

Additional partial backing came from respondents agreeing that issuing these shares may discourage short-term and speculative investors, which one said were often guilty of persuading company bosses to make “more aggressive and risky lending, dividend distribution and remuneration policies”.  

The bill has been passed to the Spanish parliament for further debate.