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Equity Finance July 2019 > 5) Secondary Share Issues > Flashcards

5) Secondary Share Issues Flashcards

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1
Q

Where are the requirements for the remuneration policy?

A
  • CA 439A(1)(b)
  • Should be put to a binding shareholder vote every 3 years.
  • If it is 3 years since they last approved remuneration report then will need to propose resolution under s439.
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2
Q

What is set out in the directors remuneration report?

A
  • Implementation statement - sets out the actual payments that are made to directors.
  • Single total figure table for each directors
  • Details on the link between company performance and pay for the financial year covered by the accounts.
  • Also, should cover the way that company intends to implement its remuneration policy in the next financial year
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3
Q

Explain the implications of an ADVISORY vote on remuneration?

A
  • There is no effect on future remuneration
  • But vote against the resolution is v embarrassing for the board and essentially like a vote of no confidence in remuneration policy.
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4
Q

What will happen if the resolution to approve the remuneration report is not passed?

A
  • Then company must put its remuneration policy to the vote at the following AGM
  • Even if the 3 year period has not expired
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5
Q

What is good advice re compliance with E.2.4 of corporate governance code that says the company should have 14 working days notice before meeting?

A
  • Comply with this
  • Unless there is a PRESSING commercial need to convene a GM on shorter notice period, e.g. if emergency fundraising was needed.
  • Then include reasons for non compliance in the next ‘comply or explain’ statement included in its annual reports and accounts.
  • Authority - undertaking only to use this should it be imperative to do so / not too expensive.
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6
Q

What are the things that I need to be able to talk about for each of the types of secondary issue?

A
  1. Definition
  2. Length of offer period
  3. Prospectus needed?
  4. Documentation sent to offerees?
  5. Opportunities for existing shareholders
  6. Cap on the discount at which shares are issued?
  7. What happens to shares that are not taken up
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7
Q

How long is the offer period for a placing

A
  • Placing can be concluded shortly after it is announced on impact day.
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8
Q

Is a prospectus required for a placing secondary offer?

A
  • NO, even though test 1 and 2 are met in s85(1)(2)
  • Exemption for test 1 - qualified investors only: can structure it this way.
  • Exemption for test 2 - placing for purposes other than an acquisition / capital investment - restricted to shares representing less than 5% of company.

For the purpose of an acquisition or a capital investment?
If NOT - issue maximum 5% of company share issued capital
If YES - issue up to 10% of company issued share capital

This falls under PEG Guidelines 2A requirements. Normal allowance for a placing is 5% and then sometimes it is 20%, know that you will be within this amount.
Note: basically can raise money but there is a limit to how much you can raise if it is not for the purpose of a specified investment or acquisition

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9
Q

When will documentation be sent to offerees for a placing?

A
  • Pre impact day, indications of interest will have been obtained from the Placees.
  • ON impact day: Placees are sent placing letter
  • Then they sign this to confirm their commitment to purchase shares.

Indication of interest –> sent placing letters to Placees –> sign to confirm commitment to purchase shares

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10
Q

What are the opportunities available for existing shareholders for a placing?

A
  • There are NO opportunities for existing shareholders
  • Is a non pre-emptive issue
  • This means that shareholders do not participate in the offer, by virtue of their shareholder. Is not an automatic thing because of shareholding.
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11
Q

Is there a cap on the discounts at which the shares are issued for a placing?

A
  • LR 9.5.10 - 10% cap unless exception applies
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12
Q

What happens if the shares are NOT taken up in a placing?

A
  • Unlikely event where the placees decide NOT to take up their allocation of shares
  • Investment bank placing the shares will purchase them instead
  • Provided that the issue is underwritten!
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13
Q

What is the offer period for a rights issue?

A
  • Assuming that PE rights have been disapplied.
  • PR 9.5.6R - have to keep open for acceptances for at least 10 business days.
  • Start: when the nil paid rights are admitted to trading
  • Which is 8AM on the day after posting of PALs.
  • If GM required - offer period CANNOT run concurrently with a GM notice period
  • FCA confirmed - period is 10 full business days. Cannot close midway through the 10th business day.
  • Rights issue therefore must close on the 11th business day after the PALS posted / impact day.
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14
Q

Is a prospectus required for a rights issue?

A
  • Yes, under both 85(1)(2)FSMA.

- Rights issues are offered to all of the shareholders - so cannot rely on the s86(1)FSMA exemption

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15
Q

What documentation is sent to offerees for a rights issue?

A
  • Every shareholder gets circular - incorporated into the prospectus
  • Explains why the rights issue is being undertaken
  • Shareholders will get a tradeable provisional allotment letter (PAL) that shows their entitlement to new shares, if the shares are held in certified form or nil paid rights credited to their CREST accounts.
  • Company - cannot send out PAL until all of the conditions of the rights issue (GM consent for e.g.) have been satisfied.
  • If GM required - shareholders will get notice of GM
  • Which will usually be incorporated with prospectus and circular.
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16
Q

What are the opportunities available for existing shareholders for a rights issue?

A
  • Shareholders participate in offer as it is a pre-emptive offer
  • The nil paid rights are tradeable
  • Can take up / trade / allow the nil paid rights that they receive to lapse.
  • LR 9.5.4R(1) - shareholders who do not take up their offer get compensation.
  • If broker can sell shares at a premium to the rights issue subscription price, premium is paid to the shareholder.
17
Q

Is there a cap on the discount at which shares can be issued for a rights issue?

A
  • Can be made at any discount to current market price of the company shares
  • Usual discount = 15-20% to the current market price
  • Up to 50% if rights issue is deeply discounted.
  • Recent market trend = towards deep discounting.
18
Q

What happens to the shares that are not taken up in a rights issue?

A
  • Have to deal with the RUMP and the STICK
  • Arrangements made for the shares not taken up by the lazy shareholders (RUMP)
  • Sold on their behalf by the broker
  • Premium obtained by the broker - over and above the issue price and less the expenses, then is remitted back to lazy shareholder
  • The stick - any shares that are not taken up that the broker is not able to place, get purchased by underwriters (providing that the issue is underwritten.
19
Q

How long should open offer stay open for acceptance?

A
  • At least 10 business days from the date on which it is first open for acceptance, so the 11th day after PALs are posted / impact day
  • Offer period can run concurrently with GM notice period
20
Q

Is a prospectus needed for an open offer?

A
  • Yes under both P tests
  • NO exemptions available for ordinary shares on the MAIN / AIM because of the fact its offered to shareholders and the size of most open offers (similar to rights issues)
  • Prospectus - placed on the companys website
21
Q

Which documentation will offerees be sent for an open offer?

A
  • Shareholders get circulars - incorporated into prospectus
  • Application form: shareholders will get invitation to apply for shares using app form.
  • Application form is NOT tradeable, so can be issued before all of the conditions are satisfied - do not have to wait for GM to be held. Applications for shareholders will then be subject to conditions to offer.
  • IF GM is required - shareholders will get notice of GM, that is usually incorporated with the prospectus and the circular.
22
Q

What are the opportunities for current shareholders for an open offer?

A
  • The shareholders cannot take part in the offer because it is pre-emptive
  • Application form - non renounceable, cannot be traded
  • Shareholdesr can either purchase shares allocated to them or allow the offer to lapse
  • No equivalent LR 9.5.4(1) for open offers
23
Q

Is there a cap on the discount available for an open offer?

A
  • Cannot have discount of more than 10% to the mid market price of the shares at date of announcmenet
  • UNLESS terms specifically approved by issuer shareholders - LR 9.5.10(3)(a)(b)R
24
Q

What happens if shares are not taken up in an open offer?

A
  • If shareholder does not want to take part, then he cannot just transfer to anyone else
  • Will NOT get a premium for shares not taken up
  • No equivalent of LR 9.5.4R(1) for open offers - orange cross in book.
25
Q

What are the key differences for an open offer compared to a rights issue?

A
  • The offer period can run concurrently with the GM notice period for an open offer.
  • Documents - have a circular but an application form which is not tradeable and can be issued before all of the conditions are satisfied, so do not have to wait until after GM has been held like for a rights issue. With RI - cannot send out the PAL until all conditions to the rights issue are satisfied.
  • Application form = non renounceable and cannot be traded. Applications for shares by shareholders will be subject to the conditions of the offer.
  • Cannot have more than 10% discount
26
Q

Why is a rights issue particularly popular with shareholders?

A
  • Popular because the rights can be traded
  • There are more options for shareholders - can take up rights / let the rights lapse, a mix and match.
  • If shares not sold broker can sell the rump. The premium received from the rump goes to the shareholder.
  • Then underwriters can sell the remainder (stick)
  • Can be made at ANY DISCOUNT to the current market price
  • Whereas an open offer - not seen as a bargain as max discount is 10%
27
Q

What is set out in the share capital management guidelines regarding the directors authority to allot for a secondary issue?

A
  • SCM guidelines para 1.1.1
  • Permits the directors authority to allot shares of up to 1/3 of its existing share capital on a placing.
  • But the PEG guidelines apply when it is a pre emptive issue like a placing?
28
Q

What must I not forget when asked about a placing discount?

A
  • That the white file say there is a max 10% discount in LR 9.5.10R(3)(a)(b)
  • BUT the PEG Statement of Principles Part 2B para 5 recommends a maximum 5% discount

Equity Finance July 2019 (9 decks)

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