Changes to UK secondary capital raising under review

The UK Secondary Capital Raising Review has made a number of recommendations which, when implemented, will make secondary fundraising by companies admitted to the official list much faster, cheaper and easier.

The Review wants to be “bold and courageous” and indeed, it is.

This post cannot do the review justice, but below are the highlights.

Improve the preemption group – The review recommends that the Pre-emption Group (“PEG”) be given a more prominent position given its key role in UK capital markets. It also recommends that PEG adopt a formal and transparent governance structure and an objective nomination process for group members.

Enable larger non-preemptive placements – The review recommends that the PEG amend its policy statement on the removal of pre-emption rights to allow, as a standard, removal authority over up to 20% (instead of 10%) of the share capital of a company. It recommends that companies can issue up to 10% of their share capital to raise funds for general purposes and use the additional 10% for specific acquisitions or capital investments. The review envisions companies using a short model form that PEG would post on its website and which, when completed, would be released by the company within a week of placement. The form would also be filed with PEG, which would maintain a searchable public database.

Helping capital-hungry businesses – The review recommends that shareholders can allow capital-hungry companies (for example, those in the technology and life sciences sectors or those whose strategy requires faster growth) to raise up to 75% of the existing share capital of a business on a non-preemptive basis annually (instead of the current 20% limit). The 75% limit would be in line with the review’s recommendation that the threshold for admission to trading of a prospectus should also be raised from 20% to 75%. This would mean that most secondary capital raises would not require a prospectus, sponsor or FCA involvement.

Shorten the fundraising calendar – The Review recommends shortening the timeframe for a fundraising, for example by reducing the period during which an offering (open offerings and rights issues) must be kept open from the current ten business days to seven business days.

Involve retail investors – The Review recommends that due consideration be given to including retail investors in all capital raisings, including placements.

Dematerialization – The Review recommends that all shareholders hold their listed company shares in dematerialized/digitized form in order to make all listed company shares, including capital increases, faster, easier and cheaper. The Treasury has already published the terms of reference for a digitalisation task force to take forward the modernization of the UK’s shareholding framework.

Some of these recommendations could be implemented more quickly than others. Indeed, the review recommends that the following be implemented immediately:

  • improve the PEG;

  • allow for larger non-preemptive placements;

  • helping capital-hungry businesses; and

  • involve retail investors.

The Chancellor of the Exchequer confirmed in his speech at Mansion House last week that he had accepted all of the recommendations in full. It is now up to the PEG, the Financial Reporting Council, the Financial Conduct Authority, BEIS and the Treasury to implement them where appropriate.

© Copyright 2022 Squire Patton Boggs (USA) LLPNational Law Review, Volume XII, Number 208

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