The outcome of the UK Secondary Capital Raising Review (the "Review") was published in July 2022 (please see our client note for further details). Some of the recommended changes have since been implemented, whilst others are still in progress and others still will take more time to be actioned. A summary of the key changes is set out below.
Already actioned: Pre-emption Rights and inclusion of retail shareholders
In November 2022, the Pre-emption Group published a new Statement of Principles and template resolutions (please see our client note for further details). As before, these apply to Main Market companies although AIM companies are also encouraged to comply. The key changes include:
- An increased general disapplication threshold - the revised Principles increase the limit of the general authority that can be sought for non-pre-emptive issues to a maximum of (i) 10% of issued ordinary share capital for disapplications for any purpose; and (ii) an additional 10% of issued ordinary share capital for acquisitions or specified capital investments announced contemporaneously with the issue or in the last 12 months (increased from six months). The revised thresholds reintroduce, on permanent basis, the temporary flexibility granted to companies during the COVID pandemic;
- Consideration of retail investors - In order to give due consideration to whether retail investors (and existing investors who are not allocated shares) should be able to take part in the placing, there is a new concept of a "follow-on offer", which can be a further 2% in relation to each limb on the basis that it is:
- limited to 20% of the number of shares issued in the placing using the 10% general disapplication;
- capped at a £30,000 purchase per ultimate beneficial owner;
- at an issue price which is equal to or less than the offer in the placing; and
- announced at the same time as, or as soon as reasonably practicable after, the announcement of the placing.
- Concept of "capital hungry companies" (i.e. companies that need to raise larger amounts of capital more frequently) – such companies will be granted more flexibility in terms of the duration and thresholds of the disapplication of pre-emption rights. The new concept aims to attract high-growth companies in sectors such as tech and life sciences.
- Reporting requirements – A post-transaction report must be announced via a regulatory information service, as well as being submitted to the Pre-Emption Group for inclusion in its Pre-Emption Database. This information should also be included in the company's annual report following the issue.
- Curtailment of status of cashbox structures – a cashbox structure should be regarded as an issue of equity securities for cash and is therefore subject to the disapplication limits.
Already actioned: expanding scope of rights issue authority to open offers
In February 2023, the Investment Association published a revised version of its Share Capital Management Guidelines (last updated in 2016). Whilst the Investment Association still regards as routine an authority to allot up to two-thirds of a company's existing issued share capital, it extends, as recommended by the Review, the application of the second one-third to all fully pre-emptive offers, not just rights issues as was previously the case. However, companies are expected to explain why they have chosen their capital raising structure and why it is appropriate for the company and its shareholders.
Still to come: Reducing regulatory involvement and cost
The remaining recommendations within this section will take more time, as many are dependent on (i) legislative changes and (ii) the outcome of the other changes taking place in relation to the listing and prospectus regimes, as described in this note. Examples of such changes are:
- raising the dilution threshold for a prospectus;
- removing the need for a sponsor;
- changes to the FCA's approach to working capital; and
- shortening the rights issue timetable (both the minimum period for rights issue and the minimum notice period for general meeting).
Still to come: Increasing range of fundraising options
Increasing the range of options is also more of a long-term goal. Options being looked at include:
- the concept of a cleansing notice; and
- a set of standard form terms and conditions with institutional investors.