Improving secondary share issues: Review Group publishes recommendations

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This briefing looks at the recommendations made by the UK Secondary Capital Raising Review for improving secondary (follow-on) equity fundraisings and what they would mean in practice for companies listed on the London Stock Exchange.

On 19 July 2022 the UK Secondary Capital Raising Review published its final report, which makes 21 recommendations designed to make it quicker and easier for listed companies to do a secondary (follow-on) equity fundraising. The recommendations are intended to represent broad consensus among exchanges, regulators, companies, investment banks, buy and sell-side investors, retail shareholder bodies and other market participants. They have been welcomed publicly by the Government, the FCA and the Pre-Emption Group. In order to balance the sometimes conflicting interests of market participants, the recommendations are presented as a package.

Key recommendations

  • The principle of pre-emption is an important shareholder protection in the UK capital markets and it should be preserved and enhanced.
  • Investors should permit companies to issue for cash each year up to 20% of their share capital on a non-pre-emptive basis. This would effectively reintroduce on a permanent basis the approach taken by the Pre-Emption Group during the Covid pandemic.
  • A company doing a placing should consider carefully how to involve as many of its shareholders are possible – for example, by including a retail offer via PrimaryBid or a similar platform, or by making a “follow-on offer” to shareholders who are not invited to subscribe in the placing.
  • On a rights issue or open offer by a Main Market company, the FCA should require a prospectus in connection with the admission to trading of the new shares only where the company is issuing 75% or more of its share capital. A sponsor should not be required.
  • Generally, a company doing a pre-emptive fundraising should not have to publish at the time of an offer information that essentially duplicates disclosures the company has already made. However, to make it easier to comply with US disclosure requirements, a company should be able to “opt in” to a new, enhanced continuous disclosure regime under which it would publish in its annual report or elsewhere certain additional information likely to be needed on a fundraising with a US element.
  • The minimum period for which a rights issue or open offer must be open should be shortened from 10 business days to seven business days; and the Government should consider reducing the notice period for a shareholder meeting other than an AGM to seven business days. 
  • Working capital statements in prospectuses should be allowed to be more graduated and/or refer to a wider range of assumptions.

Implementing the recommendations will require co-ordinated steps to be taken by, among others, HM Treasury, BEIS, the FCA and the Pre-Emption Group. Some recommendations could be implemented within months; others will take much longer, particularly where primary legislation is required.

To read the full briefing please download the publication or click here.