Wednesday 1 April 2020 12:46 pm

Watchdog eases cash call cap to help firms raise cash amid coronavirus outbreak

The Pre-Emption Group (PEG) has said existing investors in UK-listed companies should be allowed to buy a bigger share of rights issues, in a move that could make it easier for firms to raise cash amid the coronavirus pandemic.

The Financial Reporting Council (FRC) said the Pre-Emption Group (PEG) of listed companies, investors and intermediaries said the “unparalleled economic situation” could see a temporary relaxation of the rules.

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“Investors clearly want the companies in which they are invested to have access to the capital they need to maintain their solvency,” PEG said.

In order to help companies raise equity capital, the Financial Reporting Council said PEG had recommended investors consider supporting issuances by companies of up to 20 per cent of their issued share capital.

Under current pre-emption rights best practice, existing investors have the first refusal on up to 10 per cent of a rights issue in proportion to what they already hold. Doubling these rights will make it more appealing for investors to put more money into a business they already know.

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PEG’s recommendation to apply additional flexibility will be in place on a temporary basis until 30 September 2020. The group said it will reconvene before then “to assess how companies and investors have responded to the flexibility.”

Industry groups have welcomed the Pre-Emption Group’s statement as businesses hit hard by the spread of the coronavirus will need to raise capital quickly.

Andrew Ninian, director for stewardship and corporate governance at the Investment Association (IA), said:  “Investors want companies to be able to access the capital they need at this difficult time. This statement lays out clearly the steps companies will need to take to make use of this flexibility and to respect their existing shareholders.”

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The Association for Financial Markets in Europe (AFME) also welcomes the temporary relaxation after suggesting PEG take a “pragmatic and flexible approach”.

Gary Simmons, managing director of high yield and equity capital markets at AFME, said: “AFME recommends that its members follow the guidance in the PEG statement, given that the announcement is consistent with the objectives of the AFME ECM Board.”

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