Ministers are planning to make it easier for UK-listed companies to raise capital as part of a wide-ranging strategy to boost London’s stock market after Brexit.
Officials want to give companies more options to tap into deeper pools of money when raising funds through so-called secondary transactions such as selling new shares in a rights issue. They are also seeking to help companies access a more diverse range of investors.
Secondary fundraisings are often used when companies want money for emergencies or to finance investment in growth strategies that require cash quickly.
Chancellor Rishi Sunak said plans to boost UK markets go beyond attracting companies to list. “We want to make sure companies who already tap our world-leading capital markets can raise finance efficiently and include their current shareholders in the process,” he said.
Most companies that took more than £30bn last year in secondary raisings did so through private placings, using only a small number of institutional investors. This route is typically faster and costs less but excludes existing shareholders and dilutes other investors’ stakes in the company.
In contrast, only nine rights issues occurred. Like open offers of new shares to all existing shareholders, these tend to involve greater cost, time and uncertainty and involve the publication of a prospectus. Between January and August this year, £9.5bn was raised in 393 secondary transactions.
The new review will consider whether to relax the rules around rights issues — which preserve the interests of existing investors in the company — to make them more attractive.
Officials also want to open up fundraisings to retail investors, who in the past have been locked out of these institutional processes.
The Treasury has appointed Freshfields Bruckhaus Deringer partner Mark Austin as the independent chair of a new group that will make recommendations for improving the capital-raising process.
Austin said he would look at overseas markets such as Australia, where secondary raisings can be quicker and involve more retail investors.
Last year, investors allowed companies to raise up to 20 per cent of their share capital without first giving original shareholders a right of refusal, up from 10 per cent before Covid-19 hit. This was with a view to raising money rapidly, helping businesses survive the pandemic. Austin said this threshold would also be looked at in the review.
“We want to reform the capital raising process to make it cheaper, quicker and more easily involve existing shareholders, and especially more retail investors,” he said.
He will also look at whether the greater transparency around short selling that was introduced after the financial crisis has benefited the rights issue process.
The new review was one of the key recommendations of Lord Jonathan Hill, who was asked by the government to find ways to boost initial public offerings and fundraising on London’s stock markets.
The review will ask for perspectives from investors, advisers and companies about whether technology can be used to speed up the information flow to shareholders and help them exercise their rights. It will report to the government in spring next year.
Improving “the efficiency of secondary capital raisings by listed companies is an important element of making the UK an even more attractive place for businesses to list”, said Austin.
A number of other recommendations from the Hill review have already been implemented, including rule changes to boost the number of special purpose acquisition companies in London, blank cheque companies that buy businesses in a fast-tracked way to take them public.