#3442 - Secondary Issues Chart - Public Companies and Equity Finance

Secondary Issues

	Rights Issue	Open Offer	Placing	Vendor Placing
Definitions	An offer to existing security holders to subscribe in proportion to their existing holdings made by the way of the issue of a renounceable letter	Invitation to existing shareholders not made by means of a renounceable letter so not tradable	An offer by the company to issue new shares and/or an offer by existing shareholders to transfer existing unlisted shares to specified persons or clients of any financial adviser assisting in the placing which does not involve an offer to the public or to existing holders of company’s securities	An issue of new shares by the company to the seller of an asset or assets in consideration for the acquisition by the company of that asset or assets (NOT FOR CASH)
Advantages	Shareholdings are not diluted if accepted Lazy shareholders can be paid IPC support No limit on discount that can be offered Shareholders can sell the rights to buy in the PAL	Cheaper for the company Shorter time period than for a rights issue as offer period can run concurrently with notice period	Might not need a prospectus and this could save costs Smaller group of people – less administration	Cheaper for company – limitation on discount Pre-emption rules don’t apply
Disadvantages	Can take a long time as notice period and offer period cannot run concurrently Costs as underwriting fees are high Shares at a discount can cause market value to fall May still want to dis-apply 561	Not tradable- cannot sell the rights to buy Lazy shareholders don’t get money automatically May want to dis-apply 561 No more than 10% discount unless within exception – may be less attractive to shareholders IPCs prefer rights issues	Dilutes the holding Have to deal with pre-emption rights – dis-apply 561 Pre-emption group statement restricting the number of shares at a discount	Valuation may be required by 593 if the asset acquired is other than shares

Why offer shares at a discount?
1. More attractive for existing shareholders to take up the offer
2. There is no limit on the discount but must be above nominal value in accordance with the CA 2006
Commercial drivers behind a rights issue?
1. Pay of a debt
2. Buy an asset
3. Increase a bank balance
4. Improve gearing that might enhance the company’s ability to borrow
Risks of a rights issue?
1. Not all the shares may be taken up
2. Potential reduction in share price
3. Company might not pay dividends in the future
4. No nil-paid rights may develop which can prevent shareholders trading them in the future
Timetable of a rights issue

Date	Application
At the latest 10 working days before Impact Day (but probably well before)	Draft Prospectus is submitted to FSA for approval FSA will approve the Prospectus based on Listing Rules requirements
Day before Impact Day	Board meeting to approve rights issue Underwriting agreement is signed and held in escrow
Impact Day	The day when the prospectus is published Rights issue is announced to the public by RIS If not signed at BM day before, underwriting agreement signed on Impact Day, but subject to conditions Prospectus Prospectus is sent out to S/Hs A GM will probably need to be held to pass relevant resolutions (see WS8) Prospectus will therefore include notice of GM
14 clear days (between Impact day and GM) = 18 calendar days	Need to give 14 (s307 CA) clear (s360 CA) days Due to ‘deemed service’ provisions in CA s1147 (and the fact that it’s clear days) the notice period will probably end up being about 18 days
2 business days before D day	Issuer applies for admission of shares (nil paid) to Official List and Main Market (LR 3.3.2R) Detail on the application for admission (not needed in timeline question) (by submitting ‘48 hour’ documents to FSA under the Listing Rules, and ‘two- day’ documents to the Stock Exchange under the Admission and Disclosure Standard).
General Meeting	GM to pass all resolutions GM is needed to disapply pre-emption rights in relation to fractional and overseas shares + giving directors authority to allot if necessary Need to pass shareholder resolutions e.g. Grant D’s authority to allot Disapply s561 Alter AoA (ASC) Must hold GM before sending out PALs because FSA cannot make the admission to listing ‘conditional’ upon any event (LR 2.2.2(3)), i.e. it cannot first admit shares to listing and then obtain the necessary resolutions for the rights issue to proceed (i.e. send the PALs to S/Hs) Immediately following GM PALs will be sent out This is the legal offer of the rights
One business day after GM – D Day	D-Day: Shares are admitted to Listing on the Official List and Trading on the Main Market (nil paid) Trading begins – this is the start of the offer period Nil-paid rights will have been credited to the accounts of qualifying CREST shareholders
10 business days or 14 non-clear/ calendar days after posting of PALs (PALs posted on GM day)	If pre-emption rights NOT disapplied Under LR 9.5.6 a premium listed co. must keep the offer open for a period of minimum 10 business days However, s562(5) CA ’06 states that if a premium listed co. has not disapplied pre-emption rights, the offer must remain open for 14 (not clear) days The longer of the two prevails. As 10 business days is longer than 14 not clear days, the rule under LR 9.5.6 applies and the offer must be kept open for a minimum of 10 business days If pre-emption rights are disapplied Under LR 9.5.6 a premium listed co. must keep the offer open for a period of minimum 10 business days NB. Under a rights issue most co.s will want to disapply the pre-emption rights because of fractional entitlements and overseas S/Hs
Closing Day	Offer closes Offer closes at the end of the 10 business or 14 day period This is the deadline for acceptances and payment in full
Every date in the timetable AFTER this point – is determined by the underwriting agreement rather than the Listing Rules or the CA ‘06
1 business day after close of offer [General position, varies according to agreement]		Underwriters attempt to sell the rump
2 business days after close of offer [General position, varies according to agreement]		Underwriter identifies the stick and subscribes for it This is when the issuer receives the final consideration for the rights issue

Principal documentation of a rights issue?
1. Press announcement of rights issue on impact day and of the results of the issue, issued via an RIS and satisfying the need for an RIS notification
2. Underwriting agreement
3. PAL
4. Notice of GM
5. Prospectus
6. Perhaps, a separate circular
7. Documents required for admitting shares to listing and to trading
8. If the rights issue involves CREST shareholders, additional documents to enable dealing in the rights
9. Gazette notice
Overseas shareholders?
1. In a rights issue the offer needs to be sent to all qualifying shareholders but offering securities in other jurisdictions can involve complying with stricter rules than in the UK
  1. Dis-apply pre-emption rights under 561 CA 2006
    1. Overseas shareholders treated as lazy shareholders who simply didn’t take up their rights
    2. Joint bookrunners find subscribers and overall proceeds get sent to the overseas shareholders subject to a de minimis
Fractional entitlements?
1. Companies Act is unclear on fractional entitlements as to whether someone can be given half a share
  1. Place a notice in Gazette on day after offer announced stating where the offer document is available for shareholders to inspect
2. Overseas shareholders can take part in the rights issue, the problem is they just won’t know about it as they can’t be offered the issue through the offer document
CREST vs. Non-CREST?

	Non-CREST shareholders	CREST qualifying shareholders
How shares are held	Shares held in certificated form (i.e. S/Hs hold a physical certificate to a share) Usually individual S/Hs	CREST S/H’s shares are held via an account with CREST (i.e. an uncertificated form) Usually institutional S/Hs
Process of taking up shares	They receive provisional allotment letters, which they were to return, filled in as appropriate with payment if they wanted to take up their rights (in full or in part).	NO provisional allotment letter CREST shareholder would will have his nil-paid rights credited to his CREST account by 8:00am on 23/11/09 (a couple of days after despatch of the PALs to non-CREST shareholders)
Payment	Payment had to be by cheque or banker’s draft	CREST shareholders who...

How shares are held

Shares held in certificated form (i.e. S/Hs hold a physical certificate to a share)

Usually individual S/Hs

CREST S/H’s shares are held via an account with CREST (i.e. an uncertificated form)

Usually institutional S/Hs

Process of taking up shares

They receive provisional allotment letters, which they were to return, filled in as appropriate with payment if they wanted to take up their rights (in full or in part).

NO provisional allotment letter

CREST shareholder would will have his nil-paid rights credited to his CREST account by 8:00am on 23/11/09 (a couple of days after despatch of the PALs to non-CREST shareholders)

Payment

Payment had to be by cheque or banker’s draft

CREST shareholders who...

#3442 - Secondary Issues Chart - Public Companies and Equity Finance

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