UK eases cash call cap to help coronavirus-hit companies

London: Existing investors in UK-listed companies will be allowed to buy a bigger share of rights issues, in a move that could make it easier for firms hit by the coronavirus epidemic to raise cash.

Under current “pre-emption” rights best practice, existing investors have first refusal on up to 10% of a rights issue in proportion to what they already hold.
The Pre-Emption Group of listed companies, investors and intermediaries in Britain said on Wednesday the “unparalleled” economic situation meant investors clearly wanted companies to have access to the capital they need to maintain solvency.

“In order to help companies raise equity capital in these difficult circumstances, the Pre-Emption Group (PEG) recommends that investors, on a case-by-case basis, consider supporting issuances by companies of up to 20% of their issued share capital on a temporary basis,” the group said in a statement.

Doubling pre-emption rights until the end of September is aimed at making it more attractive for existing investors in a company to put more money into a business they already know.

Going above 20% would require a company to issue a prospectus, a time-consuming task if cash was needed quickly.

Gary Simmons, a managing director at the Association for Financial Markets in Europe (AFME), a banking industry body, said the move was welcome given some companies would likely need to raise capital quickly, and within limited market windows.

PEG said it would reconvene before the end of September to assess how companies and investors have responded to the flexibility.
Following the end of the temporary period, it will also carry out a wider review of the how the additional flexibility was used by companies, it said.
PEG added the change did not mean it intended, under normal circumstances, to alter the current practice of existing investors being allowed to buy up to 5% of a general cash call and up to 5% for a specific purpose – or up to 10% of the total.
PEG is based at Britain’s Financial Reporting Council, which regulates company auditors and governance.