The Association of British Insurers (ABI) has responded to the November 2008 report of the Rights Issue Review Group (RIRG) by publishing new guidance on directors' power to allot share capital and disapply shareholders' pre-emption rights.
The RIRG was set up by the Chancellor of the Exchequer in summer 2008 to examine and report on measures which could be taken to make equity raising more efficient and orderly. The RIRG recommended, amongst other things, that the ceiling on allotment headroom that shareholders should normally be invited to approve be increased from one third to two thirds of an issuer's share capital.
Under its new guidance, the ABI will continue to regard as routine a proposed resolution for authority to allot shares representing up to one third of the existing issued share capital. In addition, the ABI will regard as routine a proposed resolution for authority to allot a further one third, provided that the additional authority is only used for fully pre-emptive rights issues and the authority expires after one year.
If the additional authority is used and the monetary proceeds of the offer exceed one third of the pre-issue market capitalisation of the company, the ABI will expect the entire board of directors to stand for re-election at the next AGM. However, it is not entirely clear how the guidance on this particular point is intended to apply in all circumstances. Companies will therefore need to consult with their advisers as market practice develops and/or clarification is provided by the ABI.
For companies wishing to raise equity capital through the allotment of shares representing between one third and two thirds of their existing issued share capital, then provided they pass the relevant resolutions at their AGM, the effect of the new guidance will be to reduce the rights issue period by obviating the need for a shareholders' meeting.
The ABI's guidance is intended to assist companies in meeting the expectations of institutional investors. It is aimed predominantly at those companies whose primary listing is on the main market of the London Stock Exchange but may be relevant for companies on other public markets.
View the ABI guidance (4 page pdf).