Authors
Authors
Edmund Tyler
The Share Capital Management Guidelines (the Guidelines) set out the expectations of the Investment Association’s (IA) members as institutional investors on various aspects of share capital management. They apply to companies with a premium listing on the Official List, but the IA also encourages companies with a standard listing, and AIM companies, to comply with them.
The main change to the Guidelines is that while IA members will continue to regard as routine an annual request by a company for shareholder authority to issue up to a further two-thirds of existing issued share capital, the amount in excess of one-third can now be applied to any form of fully pre-emptive offer to existing shareholders (including an open offer). Previously, IA members expected the additional one-third to be restricted to formal rights issues, with tradeable rights and compensation for non-participating shareholders.
The IA has also endorsed the revised Pre-Emption Group (PEG) Statement of Principles and the accompanying template resolutions. IA members have asked IVIS to “red top” a company that seeks a routine disapplication of shareholder pre-emption rights in excess of the 24 per cent of issued share capital permitted by the PEG Statement of Principles. The same will apply to a company that does not follow the template resolutions, or confirm in its AGM notice that it will comply with the other shareholder protections and the expected features of a follow-on offer contained in the PEG Statement of Principles. Companies should also explain why they have chosen their capital raising structure, and why it is appropriate for them and their shareholders.
In line with the PEG Statement of Principles, the Guidelines recognise that “capital hungry” companies may need to raise larger amounts of equity capital. Accordingly, IVIS will only “amber top” a request to dis-apply shareholder pre-emption rights in excess of the 24 per cent threshold by a company that has disclosed in its IPO prospectus that it is a capital hungry company.
IVIS will red top requests by investment trusts to dis-apply shareholder pre-emption rights in excess of 20 per cent of issued share capital.
Companies should amend the proposed shareholder resolutions they include in AGM notices accordingly. For the time being, the current UK prospectus regime will constrain companies from taking full advantage of the new flexibilities, but this is expected to change in the future when the proposed reforms in this area, and the remaining recommendations of the Secondary Capital Raising Review, are implemented.
The IA has also amended the expectations in the Guidelines of its members in relation to share buybacks. Companies should disclose their proposed approach to returning capital to shareholders, including how this is aligned with the company’s long-term strategy and business model, supplemented with details of any distributions made to shareholders during the year under review and any expectations for the current financial year.
As mentioned above, these changes, together with those to the PEG Statement of Principles (published in November 2022), were recommended by the UK’s Secondary Capital Raising Review (published in July 2022). The latter forms part of the proposed package of wide-ranging reforms to the UK capital markets derived from Lord Hill's UK Listing Review, on which we have previously reported. Other related changes include: amendments to the listing rules on SPACs (effective since 10 August 2021); changes to the rules on the minimum “free float”, minimum market capitalisation and dual-share class structures (effective since 3 December 2021); the government’s proposals for the future of the UK's prospectus regime (published in March 2022); and the FCA’s proposals for reform of the UK’s IPO and listing regimes (published in May 2022).
Client Alert 2023-060
Authors
Authors
Edmund Tyler