A number of major rights issues in 2008 by companies shoring up their balance sheets demonstrated that reform of the rights issue process was long overdue. The most immediate concern was the length of the process – a minimum of 21 days or 39 if a shareholder approval was required.
The regulators have now acted to address the issue.
The Treasury's Rights Issue Review Group (RIRG) made proposals in November 2008:
- To reduce the minimum subscription period from 21 days to 10 business days;
- To raise the permitted ceiling on directors' annual authority to allot shares;
- To introduce simpler forms of pro rata offering, such as an open offer with compensation;
- To allow nil-paid dealings, on a conditional basis, before shareholder approval is obtained; and
- To introduce shorter form prospectuses for rights issues.
The FSA has now issued Policy Statement 09/02 which reduces the minimum subscription period to 10 business days for UK and overseas companies with effect from 10 February 2009.
The FSA noted that public and private investors now have the means to remain in touch wherever located and would not be materially affected by a shorter period. Companies can choose a longer period should they for any reason wish.
The London Stock Exchange has simultaneously amended its Admission and Disclosure Standards for Main Market companies and issued AIM Notice 31 as regards AIM companies so that the minimum period for open offers in each case be reduced from 15 to 10 business days.
RIRG has asked BERR to bring the period for rights issues under the statutory (or Gazette) route into line.
ABI guidance on authority to allot shares
In January the ABI lifted its ceiling on the amount of authority to be granted to directors to allot shares from one third to two thirds of issued share capital. This will reduce the occasions on which a company needs to seek shareholder approval prior to launching a rights issue. Companies will take advantage of this change at their next AGM.
Dissemination and simplification of prospectuses
RIRG proposed that, given the shorter period for shareholders to act, the prospectus accompanying a rights issue should be made available online and be made shorter and simpler. RIRG noted that the cost of preparing a full prospectus can be prohibitive for smaller companies. These reforms will however require agreement at EU level.
The reduction in the rights issue period from 21 days to 10 business days is a sensible reform which will not prejudice shareholders. It is, however, only part of RIRG's proposals to simplify and reduce the costs of raising capital. The remaining proposals should swiftly be taken forward.