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Investors urged to waive limits on fundraisings during crisis

By Sean Farrell

Date: Wednesday 01 Apr 2020

Investors urged to waive limits on fundraisings during crisis

(Sharecast News) - Investors should consider waiving limits on equity fundraisings to help companies through the coronavirus crisis, an influential industry group recommended.
The Pre-Emption Group said companies should be able to raise up to 20% of their share capital without giving existing shareholders first refusal during the crisis - double the established limit.

Pre-emption rights require companies to offer new shares to existing shareholders - a principle that investors value highly. Current guidelines let companies raise up to 10% of their share capital without giving existing investors the right to buy.

Government shutdowns of shops, factories and other businesses risk making otherwise viable businesses insolvent because of lack of cash.

Rights issues that observe pre-emption obligations are expensive and time consuming. City groups have been discussing how to make the system more flexible for companies in urgent need of funding.

"In the unparalleled economic situation that we all currently face as a result of the Covid-19, investors clearly want the companies in which they are invested to have access to the capital they need to maintain their solvency," the Pre-Emption Group said.

The group said companies seeking more flexibility issuing shares should explain their circumstances, consult with a representative sample of shareholders and give existing investors as much opportunity as possible to buy the shares. Existing share awards should not be normalised to make up for dilution of shareholdings and directors should be held accountable at annual meetings, it added.

Andrew Ninian, corporate governance director at the Investment Association, said: "We welcome the Pre-Emption Group statement providing additional flexibility on their guidelines in light of Covid-19.

"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."

The Pre-Emption Group said its recommendation would be in place until 30 September. Before then it will look at how companies and investors have reacted. It said the measure would be temporary and it had no intention of relaxing the threshold beyond the crisis.



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