In January 2009, the Financial Services Authority published a consultation paper entitled "Rights issue subscription periods". The consultation paper seeks market participants' views on the FSA's proposed change to the minimum rights issue subscription period set out in LR 9.5.6R of the Listing Rules. LR 9.5.6R currently provides that an offer relating to a rights issue must remain open for at least 21 days.
The consultation paper follows on from the November 2008 report of the Rights Issue Review Group (RIRG) which 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 recommendations of the RIRG included (i) reducing the minimum rights issue subscription period, (ii) making 'open offers with compensation' available and (iii) amending document vetting fees in relation to equity shelf registration. The FSA's consultation relates to the first of these recommendations. The FSA has indicated that it will consult on the other two recommendations at a later date.
The FSA has asked market participants to consider whether the minimum rights issue subscription period under the Listing Rules should be reduced from 21 days to either (a) 14 days or (b) 10 business days.
The ability to undertake rights issues on a shorter timetable will enable companies to raise equity capital more quickly and reduce the risks of rights issues being exposed to changes in market and financial conditions. While acknowledging that shareholders will have less time to consider rights issues, the FSA believes that if electronic communication is used to its full potential shareholders should be able to reach reasoned decisions within the proposed 14 day (or 10 business day) minimum rights issue subscription period.
It should be noted that the 14 day (or 10 business day) period is a minimum period. Companies and their advisers would, of course, be able to conduct rights issues over a longer period if they so wished. Moreover, where a company proposes to go down the statutory pre-emption offer route (because, for example, it had not disapplied statutory pre-emption rights) the minimum offer period under the Companies Act is 21 days. Whilst this statutory pre-emption of 21 days will be unaffected by FSA's consultation, the Department of Business, Enterprise and Regulatory Reform has indicated that it will consult separately on the length of the statutory subscription period.
The consultation on the proposed reduction to the minimum rights issue subscription period closed on 26 January 2009. The FSA intends to implement the amendments to the Listing Rules at the start of February 2009.
View the FSA's Consultation Paper (26 page pdf).