UK investors say cashbox capital raising comes at a price

By Huw Jones
The spread of the coronavirus disease (COVID-19) continues in London

By Huw Jones

LONDON (Reuters) - Companies lining up for cash in coming weeks to get through the coronavirus pandemic should listen to shareholders and not just be led by their investment banks, Britain's Investment Association (IA) said on Wednesday.

Companies and their employees are under severe strain, with swathes of the economy shuttered during a lockdown to stop the coronavirus spreading.

Andrew Ninian, director of stewardship and corporate governance at the IA, told Britain's top 350 listed firms in a letter that a number of companies are likely to need extra capital in coming weeks and months.

This is typically done through a rights issue, placing or open offer.

"We will continue to work with regulators, lawyers and other stakeholders to consider ways to shorten the timetables, allowing companies to raise the capital they need more efficiently," Ninian said.

But in exceptional circumstances a cashbox may be the only approach suitable, Ninian said, a reference to capital raising that by-passes shareholders.

"Shareholders would expect management to consider their views and not just be led by the views of its advisory banks," Ninian said.

Shareholders normally have pre-emptive rights or first refusal to buy up to 10% of an issue.

This was doubled to 20% this month until the end of September to allow existing shareholders to offer more financial help without diluting existing shares and voting powers.

Ninian said shareholders would expect companies to offer a placing to existing long-term shareholders in the first instance, and any use of a cashbox would be scrutinised by shareholders at the next annual meeting.

The IA, which represents managers handling 7.7 trillion pounds in assets such as shares, said companies that scrap dividends to conserve cash should reflect this in executive pay.

(Reporting by Huw Jones, editing by Ed Osmond)