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The Investment Association has revised its Share Capital Management Guidelines for quoted companies. As with the recent changes made to the Pre-emption Group Statement of Principles, the key change to the Share Capital Management Guidelines was recommended by the Secondary Capital Raising Review. The change is designed to make it easier for a company to raise larger amounts of equity finance from existing shareholders via any form of pro-rata share offering (rather than having to conduct a formal rights issue).

Auteurs: James F. Wilkinson Delphine Currie 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.