Shareholders brace for flurry of City fundraising

Bosses wanting to raise cash under light-touch new rules have just days to do so as 1 December nears.

Shareholders are on standby for a possible flurry of City fundraisings as companies seek to take advantage of relaxed rules on pre-emption rights before the end of this month.

Flexibility on equity placings was introduced in April as a way of helping embattled firms to quickly shore up their balance sheets in response to the Covid-19 pandemic.

In more normal times, shareholders usually have equal rights over new issues above 5-10% of the total share capital. But following guidance from the Financial Conduct Authority and the Pre-Emption Group this limit was raised to 20% of share capital.

Numerous companies have taken advantage of the rapid and lighter-touch approach by placing new shares with institutions, sometimes with retail investors excluded from the fundraising.

Bosses hoping to raise money under the relaxed rules now have days left to do so, with a return to normal set for 1 December. The deadline has already been extended from 30 September.

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WH Smith (LSE:SMWH) was one of the first companies in April to take advantage of the adjusted guidance when it placed 15 million shares with institutional investors at a 4% discount of 1,050p, representing 13.7% of its share capital prior to the placing.

At about the same time ASOS (LSE:ASC) raised proceeds of £247 million from a placing at 1,560p involving 18.8% of its share capital. Shares are now 4,517p.

While the balance sheet confidence generated by these fundraisings has benefited all shareholders, this is offset by the dilutive effect of the new shares and the fact that smaller investors have been shut out of the accelerated cash calls.

When Ted Baker (LSE:TED) announced plans to raise £95 million towards its transformation plan, shareholders who did not participate were told their stakes would be diluted by 74%. It did, however, raise an extra £10 million through an open offer to new and existing investors.

The biggest fundraising so far has been by catering company Compass (LSE:CPG), which secured £2 billion in May. It was also one of the first to include a retail element alongside the usual institutional placing after the company made use of the PrimaryBid platform.

Chemicals company Croda International (LSE:CRDA) used PrimaryBid this week for its £627 million share placing, which at 8.2% of existing share capital respected the usual principles of pre-emption. It is using the fundraising to support the acquisition of Spain's Iberchem.

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In a statement after successfully placing new shares with a 3% discount of 5,900p, Croda said:

“The company is pleased by the strong support it has received from new and existing shareholders, including a number of its retail shareholders via the retail offer.”

From December, accelerated share placings will be allowed for a maximum of 10% of capital, with 5% of this for corporate purposes and an additional 5% for specific investments.

Otherwise the alternative is the more traditional route of a rights issue, which is more expensive and takes longer due to the need for a prospectus and shareholder approval. A rights issue was used by Premier Inn owner Whitbread (LSE:WTB) when it raised £980 million in June by offering all existing investors one new share for every two they owned.