The updated policy statement will have an immediate impact on UK-listed companies, providing increased flexibility to undertake larger non-preemptive capital raisings.
On November 4, 2022, the Pre-Emption Group (PEG), a UK body which represents listed companies, investors and intermediaries, published its updated policy statement which implements some recommendations of the UK Secondary Capital Raising Review . (For more details on the UK Secondary Capital Raising Review, please see this Latham blog post).
Annual routine disapplication limits increased to 10% + 10%
The updated statement of principles allows for the annual removal of pre-emptive rights relating to:
- 10% of the issued ordinary share capital which can be used without restriction;
- An additional 10% of the issued ordinary share capital to be used for a specified capital acquisition or investment which is announced at the same time as the issue, or which has taken place within the preceding 12-month period and which is disclosed in the broadcast announcement; and
- An additional 20% of any issuance made in accordance with the authorizations provided for in the two points above, to be used only for follow-on offers to existing unallocated shareholders of shares in the context of such non-preferred issuances (see “Involving Retail Investors and existing ones through follow-on offers » below)
The former rolling three-year limit of 7.5%, which applied to general purpose non-preemptive issues, has been removed.
Companies using these blanket waivers (regardless of transaction size) must comply with the following terms, which build on similar terms introduced by the PEG during the COVID-19 pandemic:
- Consultation: before the announcement of the issue, the company must consult its main shareholders to the extent reasonably possible and permitted by law;
- Retail investors: special consideration should be given to the involvement of retail investors, as well as other existing investors, who are not allocated shares under the soft pre-emption process (see separate point below) ;
- Explanation: the company must provide an explanation of the background and the reasons for the offer and the proposed use of the product, including details of any acquisition or specific capital investment (in practice, this is disclosed in the announcement of the transaction );
- Soft preemption: where possible, issuance should be made on a soft pre-emptive basis (i.e. where a bookrunner allocates shares to investors in accordance with an allocation policy that seeks, to the extent possible, to replicate the existing shareholding);
- Management involvement: the management of the company must be involved in the decision to allocate shares; and
- Post-trade reports: companies are required to publish a post-trade report (template available in part 2B of the statement of principles) via a regulatory information service and submit it to the PEG for inclusion in its pre-emption database within one week following the completion of the show.
Added flexibility for capital-hungry businesses
Companies that need to raise larger capital more frequently are permitted to request an additional waiver for general use, and may request such waiver for a period longer than the default duration of 15 months or until the next AGM (whichever is shorter). IPO candidates who wish to be considered a “capital-hungry company” for these purposes must disclose that fact in their IPO prospectus and can put in place the required disenforcement authorities prior to the IPO. stock Exchange.
Engage retail and existing investors through follow-on offerings
Companies undertaking a non-preemptive capital increase under a general removal of pre-emptive rights must give due consideration to the participation of retail and existing investors (who are not allocated shares as part of the process). flexible preemption). In addition to retail investor platforms, the statement of principles suggests that companies should consider facilitating the participation of these retail and existing investors through follow-on offerings that would take place shortly after the institutional-only placement. .
The expected characteristics of these follow-on offers are set out in Part 2B of the Statement of Principles, which requires that the participation of each ultimate beneficial owner of such retail/existing investors in the follow-on offer be subject to an individual monetary cap. of £30,000.
- As with previous iterations of the PEG guidelines, the updated statement of principles applies to all companies (wherever incorporated) whose shares are admitted to the premium listing segment of the official Financial Conduct list. Authority. Companies whose shares are admitted to the Standard Segment, the High Growth Listing Segment or to trading on AIM should also consider the guidance.
- PEG’s press release says companies should take advantage of increased capital-raising flexibility by seeking shareholder approval for updating routine 10% + 10% opt-out permissions at their next annual general meeting.
- Companies wishing to raise capital under the new statement of principles before their next general meeting should consider the transition arrangements described in the UK Secondary Capital Raising Review, which consider the use of fund structures limited to authorizations of 10 % + 10%, as indicated in the updated Statement of Principles.
- Despite the increased opt-out margin, companies still have to consider fundraising size constraints arising from the UK prospectus regime. The prospectus reforms announced on March 1, 2022 have not yet been implemented. In the meantime, any retail involvement should be limited to less than 8 million euros and the prospectus threshold “for admission to trading” means that an aggregate fundraising limit of 20% of the issued share capital per 12 months still applies.
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