Project Scope

The Investor Forum began reviewing the capital raising process in late 2019, meeting with the FCA, the LSE, investment bankers and with members. The focus on capital raising by all parties escalated sharply in March this year when it became clear that the Covid-19 pandemic was going to have a significant economic impact and that many companies would need to raise additional capital quickly. We have provided input into the revised guidelines of the Pre-emption Group (PEG) and also to BEIS. We are actively monitoring the flow of capital raising activity.

This project:

• illustrates how collaborative work through the Forum can promote best practice
• provides evidence to help Members meet the demands of the Stewardship Code 2020
• provides evidence of how signatories can support Stewardship Code Principle 4

Key developments

Capital Raising and Pre-emption rights

The PEG published revised guidelines on 1st April 2020, temporarily relaxing the criteria for cash-box style placings of up to 20% of share capital and requesting that in these placings, a soft-pre-emption allocation policy should be applied.

These guidelines have been supported by the FCA and AFME (Association for Financial Markets in Europe). The FCA will monitor how the changes impact the efficiency and competitiveness of raising capital.

The FCA also announced a series of measures on 8th April aimed at assisting companies to raise capital in response to the coronavirus crisis while retaining an appropriate degree of investor protection.

Key activities

Investor Forum Briefing notes & Case studies

To help develop and share best practice, we have prepared a number of briefing notes and case studies which Members can access via the links (above right)

Our briefing notes have:

• framed the issues around pre-emption and the use of cash box structures
• reviewed the impact of changes to the guidelines and rules
• reviewed the major transactions in April.

We have also prepared case studies on some of the more interesting capital raisings which illustrate how companies must find bespoke solutions to their unique challenges and corporate structures in order to rebuild financial strength.

Outcomes

We have identified a number of  key issues which can increase the effectiveness of capital raising:

For investors:

• Actively engage with companies you invest in so that they have a clear understanding of what is important to you
• Ensure your organisational structure is equipped to deal effectively with short notice placings
• Review allocations and follow up with the company and advisors if you are not satisfied with the process

For companies and advisers:

• Consult as widely as you can
• Clearly address the key stakeholder issues – financial stability, cash reserves, employees, remuneration, management ownership
• Seek investor feedback and, if necessary, adjust the issue
• Review allocations and be available to discuss with shareholders