The Pre-emption Group (PEG) has issued a new statement of principles on the disapplication of pre-emption rights. This has increased the limit for non-pre-emptive capital raises from an aggregate 10% to an aggregate 20% of issued share capital, 10% of which can be issued on an unrestricted basis and 10% of which must be used either to fund an acquisition or a specified capital investment. This effectively doubles the amount which issuers may raise non-pre-emptively, and makes permanent the relaxation in the thresholds which PEG had instituted over the Covid-19 pandemic in order to assist issuers to raise capital quickly.
Follow on offers
The new statement of principles also allows issuers to seek further authority to disapply up to a further aggregate 4% of issued share capital, which must only be used for a follow on offer to existing shareholders and retail investors. This theoretically increases the amount which issuers may raise non-pre-emptively to an aggregate 24%, although in practice companies are unlikely to take advantage of this facility as a prospectus is currently required when offering over 20% of a company’s issued share capital in any 12 month period. The follow-on offer is also subject to a participation limit of £30,000 per ultimate beneficial owner, which may prove difficult for listed companies to ascertain in practice given that only legal owners are recorded in their share registers.
The new thresholds are accompanied by certain conditions, including that a transaction report in a prescribed form is disclosed publicly through a RIS and provided to PEG for their database and, interestingly, that the interests of retail investors are considered in all placings.
‘Cash box’ placings
Issuers will typically only have shareholder authorities in force to allot up to 10% of their issued share capital non-pre-emptively in accordance with the PEG’s 2015 statement of principles, and so any issuer seeking to take advantage of the increased thresholds before the date of its next annual general meeting is likely to do so by way of a ‘cash box’ placing. ‘Cash box’ placings have always allowed issuers to circumvent shareholder authorities obtained in general meeting as the shares are issued for what is, technically, non-cash consideration. However, PEG’s statement of principles already applies to all cash issuances, whether effected conventionally or by way of a “cash box”, and so it is only since the temporary relaxation of the thresholds during the Covid-19 pandemic that compliant issuers have been able to take advantage of a “cash box” to fundraise in excess of the 10% limit.
‘Capital hungry’ companies
PEG has also allowed ‘capital hungry’ companies to raise funds in excess of the limits set out above, provided they provide justification. Companies seeking a new listing should disclose that they consider themselves ‘capital hungry’ in their IPO prospectuses. It is unlikely that many companies will take advantage of this for the reasons set out above unless the current prospectus regime is revised in this regard.
Generally, the new statement of principles supports the Secondary Capital Raising Review’s focus on increasing the flexibility given to issuers to raise capital quickly whilst preserving the interests of existing shareholders and, in particular, retail investors.
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