Placing

Question 1

Brief description of offer structure (refer to LR definition)

Answer 1

Offer of shares to specific persons or clients of the sponsor (institutional shareholders) (placees) which does not involve an offer to the public or existing SHs.

Question 2

Authority to allot

Answer 2

One-third of ISC.

Insitutional Investor Guidelines
1.1.1 – routine to allot
one third of company’s ISC for use in any type of share issue

Question 3

Disapplication of pre-emption rights

Answer 3

s. 561 - Existing SHs ordinarily have a right of pre- emption
S. 570(1) CA – Disapplication of pre-emption rights by SR

PEG statement of Principals 2A(3): company may seek authority for general disapplication of pre-emption rights of no more than 5% of its ISC.

PEG statement of Principals 2A(4): duration criteria: should last no longer than 15 months or until next AGM, whichever is shorter.

PEG statement of Principals 2B(1): for ‘general’ authority, a company must not exercise disapplication over more than 7.5% of its issued share capital other than to existing SH during any “rolling” three year period. Note, does not apply to specific capital investment/acquisition

Further 5% of its ISC in connection with an acquisition or specified capital investment. – NOTE: must be subject of a separate resolution to the general disapplication of pre-emption rights.

So in practice can use full 10% to fund acquisition or specified capital investment.

Note, the restriction in PEG statement of Principals 2B(1) does not apply to specific capital investment/acquisition

Question 4

Is a prospectus required?

Answer 4

NOTE: Note, however, that PRR 1.2.4EU and the relevant parts of Art. 1(5) of the Prospectus Regulation
(2017/1129/EU) (which is set out in PRR 1.2.4EU) would not apply to a placing of this size as it exceeds
the 20% threshold. This means that a prospectus would be required for this placing, entailing more delay
and additional cost for Ritchisons.
SO LOOK OUT FOR IF A PROPOSAL WILL HAVE MORE THAN 20% = PROSPECTUS REQUIRED

Will constitute an ‘offer of transferable securities to the public’ under PRR 1.2.1EU/Art. 3(1), Prospectus Regulation and s. 85(1) FSMA.
But following exemptions apply:
- Placees will normally constitute “qualified investors”: PRR 1.2.3/Art.1(4)(a), Prospectus Regulation; or
- Offers addressed to fewer than 150 natural or legal persons per EEA State: Art.1(4)(b), Prospectus Regulation
Test 2
Listed co will be applying for the new shares arising from the placing to be traded on the Main Market of the LSE = prospectus will be required under PRR 1.2.1EU/Art. 3(3), Prospectus Regulation and s. 85(2) FSMA.
Exemption = PRR 1.2.4EU/Art. 1(5)(a), Prospectus Regulation = prospectus will not be required if the shares being issued are fungible with shares already admitted to trading on the same regulated market (i.e. are of the same class as shares that are already listed), provided that they represent “over a period of 12 months, less than 20% of the number of securities already admitted to trading on the same regulated market”, so co will restrict placing to less than 20% of the company’s issued share capital.
Note: You should double check that the company has not issued any shares in the previous 12 months to confirm that the 20% threshold in PRR 1.2.4EU (Art. 1(5)(a)) has not been exceeded.

Question 5

Documents?

Answer 5

Placing letter (terms & conditions of placing) (placees confirm commitment to purchase)

Circular

Question 6

Length of offer period?

Answer 6

Unlike rights issues and open offers, there is no minimum offer period for new shares being offered in a placing. Timetable therefore flexible, typically depends on the terms of the placing agreement and the demand for the new shares from institutional investors, can be a couple of days between launch and admission.

Question 7

Opportunities available to existing SHs

Answer 7

Non pre-emptive, though brokers may choose to send to existing institutional SHs

Question 8

Is there a cap on discount at which shares are issued?

Answer 8

PEG Statement of Principles 2B para 5 – restrict discount to max 5%.
LR 9.5.10R threshold of 10% does not apply since this issue is under preexisting disapplication of pre-emption rights (see LR 9.5.10R(3)(b).

Question 9

What happens to shares not taken up?

Answer 9

Should not happen if bookbuilding done properly

If issue underwritten, investment bank doing placing will purchase (though unusual)

Instead can have a reasonable endeavours clause in placing agreement but if no underwriting, shares will not be issued