The ABI, which represents some of the UK's biggest investors, has provided companies with additional flexibility to raise new funds from existing shareholders by relaxing the rules on issuing shares on a pre-emptive basis.
Under the new guidelines, institutional investors will be encouraged to vote in favour of resolutions that give directors authority to undertake a rights issue of up to two-thirds of the company's market capitalisation without asking existing shareholders for approval. The previous limit was one-third.
These changes have been introduced largely as a result of the collapse of the banking sector over recent months. It is argued that, had the banks been able to raise additional capital from their existing shareholders in a more timely manner, then some of the impact on their share prices could have been contained. It is for these reasons that the ABI has sought to give companies greater flexibility to raise capital from their existing shareholders.
It is worth noting that any company that takes advantage of the new guidelines will need to put its board up for re-election the following year in the interests of ensuring that directors remain accountable to shareholders for taking the decision to raise significant funds in this way.
The measures were discussed and agreed by the Rights Issue Review Group, which was set up by the Treasury and made its recommendations at the end of November.