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23 April 2024

Britain to cut rights issue period to speed up fundraising

By Reuters

Britain's financial watchdog said it is to cut the time investors have to sign up to a rights issue to reduce fundraising risk and allow firms to raise cash in less than half the time it currently takes.

The plan, coupled with recent changes to guidelines for investors, should shorten the rights issue period to 16 days, compared with the 39 days at present. The Financial Services Authority (FSA) yesterday proposed to cut the minimum subscription period for a rights issue to either 14 calendar days, or 10 business days, from 21 calendar days.

The shortened timeframe would allow companies to raise capital quickly when they need it most, said Sally Dewar, the FSA's managing director of wholesale and institutional markets.

"Taking these steps will help limit the potential for rights issues to be disrupted by market instability, which could potentially damage investors' confidence," she added.

The Association of British Insurers last week relaxed its guidelines to allow firms to issue new stock of up to two-thirds of shares without calling a formal vote.

The FSA wants its proposals to take effect next month, after a brief period of consultation.

The proposals follow recommendations made by the rights issue review group in a report in November, following a series of volatile rights issues by top UK banks last summer.

Fundraisings by Royal Bank of Scotland, HBOS and Bradford & Bingley were hit as speculators took advantage of jittery markets to undermine confidence in the banks. HBOS's rights issue took almost three months to complete.

The FSA said consultation on other possible changes will take place later this year.

Last year's review group report said longer term changes could reduce the rights issue period to "materially below" 16 days.