New ABI guidelines speed up rights issues

by Gill Montia

Story link: New ABI guidelines speed up rights issues

The Association of British Insurers (ABI) has issued new guidelines on rights issues.

In future, companies will only need shareholders to vote on a fundraising if they are increasing share capital by more than two thirds.

Previously a vote was needed if a rights issue increased share capital by more than one third.

The move aims to speed up the rights issue process and help insurers looking to re-equitise during the credit crisis, while borrowing remains both restricted and expensive.

The guidance is not legally binding but does constitute “good practice”, according to the ABI.

It should allow companies to raise money from existing investors in discounted share issues and avoid some of the difficulties experienced by the banking sector last summer, when market rumours and short-selling caused share prices to drop below the discounted price before a fundraising was concluded.

The changes do, however, preserve the principle of pre-emption, whereby existing shareholders are first-entitled to take up any rights issue.

In November, the Rights Issue Review Group, which had been set up by the Government to restore confidence in the rights issue process, recommended shortening the duration of rights issues in the UK to as little as 16 days.

The group’s report blamed the long duration of rights issues for investor unease over several British lenders, notably Bradford & Bingley, HBOS and Royal Bank of Scotland.