Relaxation of company fundraising rules extended

(Sharecast News) - The overseer or shareholders' pre-emption rights has recommended investors support companies seeking quick access to capital until the end of November as Covid-19 casts a shadow over the economy.


The Pre-Emption Group recommended in April that investors should consider waiving constraints on equity fundraisings to help companies through the Covid-19 crisis until the end of September.

In an update on Friday the group said the relaxation had been successful and had helped companies raise almost £24bn since the start of 2020. It said given continued uncertainties over Covid-19 and with a pipeline of equity offerings in place for the third quarter it would extend the recommendation by two months.

Pre-emption rights require companies to offer new shares to existing shareholders - a principle that investors value highly. Normally companies cannot raise more than 10% of their share capital without giving existing investors the right to buy.

Under the temporary measure companies have been able to raise up to 20% to secure urgently needed funds. Rights issues that observe pre-emption obligations are expensive and time consuming compared with quick share placings.

The group said of £23.7bn raised in 2020 more than 125 of the issuances were for emergency funds. Companies such as National Express, Biffa and Hotel Chocolat have made use of the temporary measure to raise funds quickly during the crisis.

"Investors have responded pragmatically to the extenuating circumstances by extending the usual thresholds for pre-emptive issuances," the Pre-Emption Group said. "Companies and market participants have also responded responsibly to the additional flexibility and have generally recognised the desired conditions of the PEG guidelines."

The group said by the end of November companies should have had enough time to assess their financial requirements and that after that date the rules would return to normal. But it said it would work with the Financial Conduct Authority, the Treasury and others to review the rules in light of the successful experiment.