COVID-19: FCA new policy on new share capital issuance of listed companies
On 8 April 2020, the FCA published a statement of policy setting out a series of measures aimed at assisting companies to raise new share capital in response to the coronavirus crisis while retaining an appropriate degree of investor protection. It also published technical supplements on working capital statements and modification of general meeting requirements under the Listing Rules which set out two of the measures included in the statement in more detail.
The guidance applies from 8 April 2020. The measures relating to working capital statements and general meeting requirements will apply until the FCA advises otherwise.
A formal consultation is not being undertaken, but the FCA welcomes feedback from stakeholders on the measures and on any future actions or clarifications which would address arising risks and help to ensure the market works well.
Small share issues
For smaller share issues, the FCA refers to the statement of the Pre-Emption Group published on 1 April 2020 in which it recommends that investors, on a case-by-case basis, consider on a temporary basis supporting issuances by companies of up to 20% of their issued share capital.
The FCA urges market participants to review and consider the new guidance set out in the statement carefully. It notes that one of the conditions that the Pre-Emption Group states should be applied where companies are seeking the extra flexibility set out in the statement is that, as far as possible, the issue should be made on a soft pre-emptive basis (meaning, in the context of a placing, that the allocation policy seeks, to the extent possible, to replicate the existing shareholder base). The FCA encourages issuers to contribute to delivering such soft pre-emption rights by exercising their right under Article 40(5) of MiFID delegated regulation (EU) 2017/565 to be consulted on, and to direct, bookrunners' allocation policies.
The FCA will monitor how the new practices are applied and whether any risks to market integrity or consumer protection arise.
Share issues with a prospectus
Shorter form prospectuses
The FCA encourages listed companies issuing new equity to recapitalise the company in response to the coronavirus crisis to use the simplified prospectus regime for secondary issues introduced under the Prospectus Regulation. Disclosures that are not required under the simplified regime include an operating and financial review, disclosure on organisational structure, on capital resources, on remuneration and benefits and board practices.
Under the Prospectus Regulation, the regime is available to companies that have been admitted to trading on a regulated market or SME growth market for at least 18 months. The FCA notes that the regime may not be an option where the offer has a non-EU component in a jurisdiction with its own disclosure requirements, such as the US.
Working capital statements
The FCA notes that the uncertainty created by the coronavirus pandemic and the economic impact of the public policy response makes the financial modelling underpinning the working capital statement uniquely challenging. In particular, the requirement under the ESMA Recommendations for issuers to model a "reasonable worst-case scenario" is extremely difficult in the current circumstances with companies experiencing unprecedented interruptions and disruptions in their business as a result of government restrictions, as well as from the impacts of the coronavirus itself and the consequent fall in demand with significant and unprecedented uncertainty as to the future impact and duration of the disruption. Paragraph 114 of the ESMA Recommendations states that the disclosure of assumptions underpinning the working capital statement is not normally acceptable.
Without modification, the approach set out in the ESMA Recommendations would result in a significant number of working capital statements published as part of recapitalisation exercises being qualified (meaning that the working capital statement would state that the issuer does not have sufficient working capital for its current requirements, that is for at least 12 months). The FCA is seeking to ensure that prospectus disclosures give investors an accurate picture of the financial condition of the issuer. Investors should be provided with the necessary information to distinguish, for example, otherwise financially sound companies that need to repair their balance sheet due to coronavirus-related disruption and those companies with more profound problems, who do not have sufficient working capital to cover at least the next 12 months.
The FCA has published a technical supplement on working capital statements in which it sets out its approach to working capital statements for the duration of the coronavirus crisis. The approach applies to prospectuses and to circulars published by premium listed companies where the Listing Rules require a working capital statement to be included.
In summary, under the new approach:
- Key modelling assumptions underpinning the reasonable worst-case scenario will be permitted to be disclosed in an otherwise clean working capital statement. The assumptions may only be coronavirus-related. They must be clear, concise and comprehensible. Non-coronavirus assumptions may not be included.
- There must be a statement that the working capital statement has otherwise been prepared in accordance with the ESMA Recommendations, and the technical supplement to the FCA Statement of Policy on the coronavirus crisis.
The FCA will continue to follow all other aspects of the ESMA Recommendations in determining whether to approve a prospectus.
Full details of the measures relating to the working capital statement are set out in the technical supplement.
The FCA states that it will continue to work with ESMA and relevant competent authorities in Europe to agree a consistent approach where this will benefit market participants.
General meeting requirements under the Listing Rules
To address challenges faced by issuers during the coronavirus crisis in holding general meetings required under the Listing Rules and to alleviate time constraints imposed by notice period requirements, the FCA is modifying the Listing Rules requirements on a case-by-case basis in the following cases:
- Class 1 transactions (LR 10.5.1R(2)).
- Related party transactions (LR 11.1.7R).
Premium listed companies undertaking such a transaction may apply to the FCA for a dispensation from the requirement to hold a general meeting. The FCA will grant a dispensation on a case-by-case basis subject to the following requirements being met:
- The issuer has obtained or will obtain a sufficient number of written undertakings from shareholders (who are eligible to vote under the Listing Rules) that they approve the proposed transaction, and would vote in favour of any resolution to that effect at a general meeting were it to be held, to meet the relevant threshold for obtaining shareholder approval.
- The issuer provides written confirmation to the market that it has obtained sufficient written undertakings to meet the relevant threshold to pass the resolution(s) and, subject to the dispensation being granted, is not proceeding with a general meeting. This could be included in the relevant FCA-approved explanatory shareholder circular and accompanying announcement via an RIS. Alternatively, if sufficient written undertakings to meet the threshold have not been obtained at the time the circular is sent to shareholders, it could be included in a subsequent announcement.
Where issuers have provisions in place to provide for holding virtual general meetings, the FCA continues to support this as a means for gaining shareholder approval.
Full details of the measures relating to the modification of the general meeting requirements are set out in the technical supplement.
Market Abuse Regulation
The FCA states that MAR remains in force and companies are still required to fulfil their obligations concerning the identification, handling and disclosure of inside information. It further states that companies, advisors, and other persons who have access to inside information must continue to assess carefully what information constitutes inside information at this time, recognising that the global pandemic and policy responses to it may alter the nature of information that is material to a business's prospects, and in relation to market recapitalisations.
for more information on this or other corporate matters, please contact Svetlana Gooderham.