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Cash-Strapped U.K. Firms Seek Looser Rules on Stock Offers

David Hellier, Myriam Balezou and Swetha Gopinath

(Bloomberg) -- Advisers to cash-strapped U.K. companies are asking regulators to relax rules on new stock offerings, in a move that could make it easier to raise much-needed funds, people with knowledge of the matter said.

An industry group representing investment banks is lobbying the Financial Conduct Authority to increase the maximum discount that’s allowed for equity sales on the U.K. bourse, according to the people, asking not to be identified because the information is private.

The group is also seeking for London-listed companies to be able to sell a greater amount of stock without shareholder approval than corporate governance norms currently recommend, the people said.

Such changes would give companies flexibility to quickly raise fresh capital at a time when the coronavirus outbreak is hurting ever-wider swaths of the global economy. The Association for Financial Markets in Europe, known as AFME, is leading discussions on behalf of the banks, which are seeking for guidelines to be relaxed until the pandemic is over, the people said.

It wasn’t immediately clear how receptive regulators would be to AFME’s requests, the people said.

The FCA’s U.K. listing rules currently allow companies to sell new stock at as much as a 10% discount to the market price when an offering is announced, unless shareholders approve a higher level for a specific transaction.

In addition, companies trading in London often seek upfront approval to sell a certain amount of stock to outside investors without first offering it to existing shareholders. Trade bodies representing major asset managers in Britain suggest such offerings should be limited to 5% of a company’s share capital, or 10% if it’s to fund a specific investment. While U.K. regulations allow companies to sell more than that, doing so can lead to public censure.

The London-based Investment Association criticized TalkTalk Telecom Group Plc in 2018 for a placement of new stock equal to more than 19.9% of its existing share capital. The group, whose members manage more than 7.7 trillion pounds ($9 trillion) of assets, said TalkTalk’s actions set “a very damaging precedent” and were “a blatant disregard” of industry-accepted standards. It argued that existing investors should have been offered the option of buying the stock first so their holdings aren’t diluted by the fundraising.

Companies often prefer raising funds quickly by selling shares to a select group of institutional investors. Such deals can be arranged behind closed doors and executed within hours: typically an offering launches after the market close and is priced before trading begins the next day. Rights offerings, which are seen as fairer to existing investors because they can participate in proportion to their current holdings, take weeks to complete and play out in the public gaze.

An AFME spokesperson declined to comment. Representatives for the FCA and the Investment Association didn’t immediately respond to requests for comment.

(Updates with typical timetable for offerings in penultimate paragraph)

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