Fire at Marywilska - public information or an item of inside information?

The primary obligation of issuers on the organised market is to immediately disclose to the public inside information directly concerning them (Article 17(1) of the EU regulation MAR). The definition of inside information is contained in Article 7(1) MAR, according to which it is information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more issuers or to one or more financial instruments, and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the prices of related derivative financial instruments.

The destruction of the hall in Marywilska Street is already a well-known circumstance and has been for several hours. Nevertheless, the notorious nature of the conflagration does not in advance exclude the need to qualify the set of data related to this event as confidential information.

In my view, the burning down of a shopping centre can sometimes be a contributor to the identification of inside information by an issuer. The relevant inside information should specify with precision the impact of the destruction of the hall on the price of the financial instruments of the public company.

While the hall fire is a notorious fact, the financial and non-financial consequences of this event on the issuers business, financial and asset position are not obvious from the point of view of a rational investor. Meanwhile, it is evident from the activity of the discussants in the online forums that investors are keenly interested in learning more about the degree and type of risks that may arise from the burning of the hall.

In particular, in any current report on inside information, the issuer should refer to such matters as:

1) the extent of the losses and the impact of the fire on the issuer’s business and its financial results (if already possible to estimate at least provisionally);

2) the plans of the issuer’s management (or subsidiaries) in relation to the remediation of the damage;

3) insurance coverage for the damaged property;

4) the impact of the hall tenants’ cessation of rent payments on the issuer’s financial results;

5) the possibility of claiming damages from third parties (e.g. those responsible for the maintenance and effectiveness of the fire protection system);

6) the readiness to rebuild the hall with an indication of the expected date and scale and the purpose of the facility;

7) the risk of termination of the property lease agreement by the city in connection with, for example, a possible breach of the provision of Article 696 of the Civil Code, according to which the lessee should exercise its right in accordance with the requirements of sound economy;

8) the risk of claims for damages by the tenants of the hall against the owner and operator of the shopping centre.

One of the basic conditions for capital market efficiency is the prompt publication of inside information. Therefore, it is to be expected that the issuer’s management will treat communication with investors with urgency, and this regardless of the fact that the hall burned down on Sunday. While the company may not be able to collect and publish all the information immediately, at least some of it should be made public immediately, subject to supplementation as circumstances change or become new. Just as the fire brigade does not rest on Sunday, issuers should expect to identify inside information even on holidays.