The Government has today announced the formation of a working party to review the efficiency of the UK's capital raising process. The party will be chaired by the FSA chief executive Hector Sants and Economic Secretary to HM Treasury Kitty Ussher and will be considering whether changes are need to UK company law, market practices or regulatory requirements in order to make the raising of equity capital more efficient and orderly. The relationship between this new working party and the recently formed Rights Issue Review Group is not entirely clear, although both groups are chaired by Sants and Ussher. We have been here before (albeit under different market conditions). In 2005, Paul Myners CBE produced a report for the Government in which he considered the impact of pre-emption rights on companies' ability to raise new capital and proposed changes to the current regime. It is not clear whether Myners' proposals were seriously considered by the Government. Mr. Myners has, however, commented on the current debate in a recent article in the UK's Daily Telegraph newspaper - see here - which begins:
The principle of pre-emption has been a cornerstone of capital raising under UK company law for nearly 200 years. Shareholders need to know that they are protected from any unwelcome dilution in value or control of their investments. But public companies also need to be able to raise new equity cheaply and efficiently when it is required. Are the two now in conflict?
The UK's concept of pre-emption is one of the things which differentiates the UK equity market from many other jurisdictions, including the US. It is a source of strength, not weakness. But the outdated, complex, and lengthy processes of rights issues are seeing this approach to capital raising placed under attack, particularly from US investment banks".
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