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Coronavirus - Pre-Emption Group extends additional flexibility for equity placings to 30 November 2020- UK

  • United Kingdom
  • Coronavirus - Regulatory issues
  • Corporate

08-09-2020

The Pre-Emption Group (PEG) has announced that it is extending, to 30 November 2020, its recommendation that investors, on a case-by-case basis, continue to support placings by listed companies of up to 20% of their issued share capital over a 12 month period.

April 2020 statement

As discussed in our earlier briefing, Coronavirus – Impact on working capital and fundraising options, the PEG announced on 1 April 2020 that, on a temporary basis, given the unparalleled economic situation caused by the COVID-19 pandemic, it would be recommending to investors that, on a case-by-case basis, they consider supporting non pre-emptive issuances of up to 20% of issued share capital. This is instead of the usual maximum of 10% (5% for general corporate purposes with an additional 5% for specified acquisitions or investments) as set out in the PEG’s Statement of Principles. This recommendation was stated to apply initially until 30 September 2020.

Latest statement from the PEG

The latest statement from the PEG on 4 September 2020 notes that this relaxation has been very well received by the market and that companies and market participants have responded responsibly to the additional flexibility, generally recognising the desired conditions of the PEG guidelines. The PEG notes that in view of the continued uncertainties of the COVID-19 pandemic and the developing pipeline of equity offerings over the third quarter, it has decided to extend the relaxation of its guidelines by a further period of two months. The extension is intended to allow companies more time to assess any unforeseen consequences of COVID-19 related financial and cashflow developments. The PEG expects to return to the expectations within the Statement of Principles noted above after 30 November 2020.

The PEG states that the additional flexibility should only be used by companies experiencing extreme circumstances and where the issuance is required to fund an immediate concern. They also reiterate the steps that companies which seek the additional flexibility should take, including:

  • the particular circumstances of the company should be fully explained, including how the company is supporting its stakeholders;
  • effective consultation with a representative sample of the company’s major shareholders should be undertaken, and companies would be expected to disclose information about the consultation undertaken prior to the issuance;
  • consideration should be given to the effect of the issuance on retail shareholders, and how they may be able to take part in some aspect of the issuance;
  • the date at which the status of shareholding is assessed for the purposes of pre-emption should be clearly disclosed and, as far as possible, the issue should be made on a soft pre-emptive basis. Further explanation of ‘soft pre-emption’ was provided by the FCA in their April 2020 Statement of Policy;
  • company management should be involved in the allocation process; and
  • existing share awards should not be normalised to negate the dilutive effect of the issuance.

The PEG statement also notes that the PEG Statement of Principles applies to all issuances of equity securities undertaken to raise cash, irrespective of the form of the transaction, including “cashbox” transactions. The use of cashbox structures is discussed in more detail in our briefing here.

Future developments

Whilst the PEG states that, after 30 November 2020, it expects companies will revert to seeking approvals for a maximum of 10% as set out in the Statement of Principles (5% for general corporate purposes with an additional 5% for specified acquisitions or investments), they note that the additional flexibility has allowed companies to raise much needed cash quickly and efficiently. The PEG therefore intends to engage with the FCA, HM Treasury and other market participants to gather views on the process of issuing shares and possible changes to make the market more effective and competitive in the future.

Conclusions

Since the Coronavirus pandemic took hold, we have seen an increasing number of non pre-emptive placings using accelerated bookbuild structures as well as a number of cash box placings and companies have taken advantage of the temporary flexibility granted by the PEG. One feature of recent fundraisings has been the addition of a retail offer via the investment platform PrimaryBid as a means of taking into consideration the interests of all stakeholders, including employees.

There has, however, been mixed practice during the 2020 AGM season as to whether companies have sought shareholder authority at their AGM for the increased amount permitted under the temporary relaxation announced by the PEG.

For more significant capital raisings (ie rights issues and open offers) requiring a prospectus, the EU Commission adopted a legislative proposal for a simplified EU recovery prospectus in late July (discussed further in our briefing here). However, there is uncertainty about the time frame for implementing these proposals.

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Pre-Emption Group extends additional flexibility for equity placings to 30th November 2020