The revised Principles were published on 4 November 2022 in response to last year’s UK Secondary Capital Raising Review which, among other things, recommended that listed companies should have the ability to conduct smaller fundraisings more quickly and cheaply on the UK’s capital markets with greater flexibility for issuers. For a summary of the key changes, see below.
Minority take-up of increased headroom
In the midst of a busy 2023 AGM season, early indications are that whilst a number of listed companies have sought the increased maximum headroom for new issues in the coming year, a significant number have been more reticent, opting instead to continue to seek authorisations in line with the guidance in the previous 2015 Principles.
In a sample of 100 AGM notices published by FTSE 350 companies since January 2023, the following trends were identified:
Our analysis
It is surprising that more listed companies have not sought the greater flexibility to raise equity capital this year, particularly given current bank lending conditions and the apparent market support for greater flexibility in the UK’s pre-emption regime. Indeed, our analysis of the sample data indicates that a greater proportion of FTSE 100 companies opted not to seek the increased headroom this year, suggesting that there is more sensitivity around pre-emption rights amongst the shareholder base of larger companies or perhaps less of a need to seek increased flexibility for future equity raises than the rest of the FTSE 350.
Additionally, key shareholders might have expressed a stronger preference for issuers to consider potential share buy-backs (generating greater value for investors) this year, rather than to pursue further fundraisings for potential M&A activity in a challenging global economy. Whilst companies might be taking a cautious approach this AGM season – the increased flexibility to raise more equity capital is likely to be a useful option and further utilised in future years.
Revised Principles: Summary of key changes
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Recommend supporting companies seeking authority to non-pre-emptively issue shares:
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PEG Statement of Principles 2015
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New PEG Statement of Principles 2022
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For general purposes
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Up to 5% (and up to 7.5% in any three year rolling period)
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Up to 10% (on a year-by-year basis – no rolling period applicable)
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For an acquisition or specified capital investment
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Up to 5% for those transactions announced contemporaneously or within the last 6 months
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Up to 10% for those transactions announced contemporaneously or within the last 12 months
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For ‘follow-on’ share issues to existing shareholders / retail investors up to a further 2% for each of the two limbs above
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Yes – subject to certain conditions, including a £30,000 monetary cap per ultimate beneficial owner
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Other features
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Capital hungry companies
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Additional disapplication authority may be approved, whether or not in connection with an acquisition or specified capital investment
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Reporting
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Certain details to be included in the issuer’s next annual report
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‘Post-transaction report’ must be completed with detailed information on the issue. Must be announced via an RIS and submitted to PEG for inclusion in its database. Information also included in the annual report
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How we can help?
If you have any queries on the revised Principles or any related matter, please do contact your usual contact at Hogan Lovells or one of the listed contacts.
We will also be discussing these emerging trends in our upcoming webinar on Wednesday 17 May: AGMs: The 2023 season. Join us for our analysis of the AGM season so far in which we will provide expert insight and commentary on the latest market trends, key activist campaigns and other important global developments which are relevant to boards and investors. With keynote remarks from Andy Griffiths, Executive Director at The Investor Forum. To register, please click here.
Authored by Patrick Sarch and Danette Antao.
