Retail shareholders overlooked in fundraisings, UK investment chiefs warn

Leading figures from the UK’s financial services sector have written an open letter to the boards and management teams of UK-listed companies calling on them to respect the rights of retail shareholders in future equity fundraisings.

“COVID-19 is leading to a large wave of recapitalisations for UK plcs. We are concerned that UK retail investors are not receiving their entitlements to participate in these often discounted fundraisings,” the letter stated. More than two dozen senior executives signed the letter, including Anne Richards, chief executive of Fidelity International, Hargreaves Lansdown founder Peter Hargreaves, and Andy Bell, head of AJ Bell.

An estimated £2.7bn has been raised for UK companies on deeply discounted terms in response to coronavirus since March, with retail investors largely excluded from participating.

“We encourage UK plcs and their boards to protect individual shareholders and employees by respecting their rights to participate alongside the institutional investors, management teams and board members,” the letter said.

It recommended that companies offer retail tranches as part of any fundraising and that deal advisers factor in smaller investors when structuring equity offerings.

Britain’s financial regulator this month relaxed rules to allow companies to raise emergency funds from shareholders, including measures to speed up equity fundraisings.

The Pre-emption Group, whose members include representatives from the Financial Reporting Council, corporate brokerages, investment houses and public businesses, had initially held discussions in March about changes to help companies raise equity quickly.

According to people briefed on the conversations, several asset managers expressed concerns about relaxing the rules, fearing the impact on retail investors. “Some people were standing up for smaller shareholders,” said one senior figure at a fund group.

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However, others feared that without an urgent overhaul, companies would go bust. Since the relaxation of the rules, some asset managers have also pushed companies that have bypassed the pre-emption rules to later offer smaller shareholders the chance to increase their shareholding.

Under current guidelines, companies are able to raise up to 10 per cent of the share capital without first giving original shareholders a right of refusal. However, some companies have issued up to 20 per cent using a cash box structure, which allows them to bypass pre-emption requirements and is against the Pre-emption Group’s guidelines.

The letter added that retail investors had recently shown strong backing for London-listed companies.

“In recent weeks, they [retail investors] represented over 20 per cent of the volume on the FTSE All-Share with 60-74 per cent of this volume being buy orders. UK stockbroking platforms are reporting over threefold increases in new account openings. They can and should represent a powerful source of funds for listed companies,” it said.

Other signatories include Martin Gilbert, former co-CEO of Standard Life Aberdeen, Kevin Parry, chairman of Royal London, and Brian Williamson, a former director of NYSE Euronext.


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