IA Share Capital Management Guidelines updated to facilitate capital raising
The Investment Association has published a revised version of its Share Capital Management Guidelines, in line with the recommendations of the UK Secondary Capital Raising Review which was published last year and aims to facilitate capital raising. The Guidelines also support and complement the updated Pre-emption Group Statement of Principles issued in November 2022.
The new Guidelines replace the set published in 2016 and are non-binding but influential. They apply to premium listed companies, although companies with a standard listing, AIM companies and companies whose shares are admitted to the High Growth Segment are also encouraged to adopt them.
Key changes include:
- Two-thirds allotment authority no longer confined to rights issues (paragraph 2.1): As before, IA members will regard as 'routine' an authority to allot up to two-thirds of a company's existing issued share capital. However, amounts in excess of one-third of the existing issued share capital can be used in any form of a fully pre-emptive offer, not just for rights issues. As recommended in the Secondary Capital Raising Review, IA members expect companies to explain why they have chosen their capital raising structure and why it is appropriate for the company and its shareholders.
- Updates to reflect new pre-emption rights disapplication guidance (paragraph 2.2): the Guidelines have also been updated to support the new Pre-emption Group Statement of Principles (published in November 2022), which allows for an annual disapplication of investor pre-emption rights of up to 20% of the issued share capital and an additional 4% for a follow-on offer. Companies seeking a disapplication of pre-emption rights at AGMs held in 2023 should follow the template resolutions as far as applicable (except for capital hungry companies – see below). The IA's research provider, IVIS (Institutional Voting Information Service) will mark with a “red-top" (the highest level of warning) companies that seek:
- to disapply shareholder pre-emption rights over new share issues for amounts in excess of the 24% of the issued share capital which is allowed by the PEG Statement of Principles; or
- a disapplication of pre-emption rights which is not more than the permitted 24% but which does not clearly comply with key parts of the PEG Statement of Principles by:
- following the wording of the PEG's template resolutions;
- confirming that the company will follow the shareholder protections set out in Part 2B of the PEG Statement of Principles; or
- confirming that the company will follow the expected features of a follow-on offer, as set out in paragraph 3 of Part 2B of the Statement of Principles.
- Capital hungry companies (paragraph 2.3): The IA supports the PEG's approach to capital hungry companies which need to raise larger amount of capital more frequently. IVIS will amber-top pre-emption authorities in excess of 24% of issued share capital of companies that have disclosed in their IPO prospectus that they are a capital hungry company.
- Own share purchases (paragraph 3): Institutional investors support companies' efforts to return surplus funds to shareholders. The Guidelines have been updated to state that companies should set out their proposed approach to returning capital to shareholders, including how this is aligned with the company's long-term strategy and business model. This should be supplemented with details of any distributions made to shareholders during the year under review and any expectations for the current financial year. Dividend payments remain the preferred method for regular distributions to shareholders.
- Issue of shares by investment trusts (paragraph 5): For these types of listed entity, IVIS will red-top pre-emption authorities which are for amounts greater than 20% of the issued share capital (excluding shares held in treasury).
See the IA's revised Share Capital Management Guidelines here.
