LONDON (CU)_Over the past year, since the beginning of the COVID-19 pandemic, public markets were proven to be a vital tool in dealing with the global health crisis, as the amount of equity raised by UK-listed companies significantly escalated. According to recent data, in 2020 alone, more than £40bn was raised by public companies in London, with the aim of replenishing their balance sheets, as well as boosting investment, growth and employment.
However, experts are of the view that much more could be raised if changes are made to certain rules on offerings of shares in listed companies, particularly those rules which were derived from EU directives.
Under the current regulations, companies which intend to raise more than €8m or more than 20 per cent of their existing market capitalisation by issuing equity capital to the public, are required to submit a prospectus to the regulators and obtain approval. This means that the process of raising capital through a retail offering is more costly and too time consuming and therefore, in most cases, companies do not offer more than €8m to retail investors.
On the other hand, here, the term ‘public’ does not include existing shareholders, which means they are blocked from participating in further equity offerings.
Fortunately, these concerns were addressed by the UK Prospectus Regime Review, issued by the Treasury in early July, which proposed several significant changes that are expected to produce the long-awaited reforms. A noteworthy recommendation made in the new consultation paper that was issued following the Lord Hill review, was the removal of the limit on funds that can be raised by main market listed companies by issuing equity capital to the public. It also proposed a change in the definition of the ‘public’, so as to include existing shareholders.
Experts believe that if adopted, the suggested changes could have an immediate positive impact on the United Kingdom’s economy, as they would make the process of raising capital by listed companies more efficient, and lower the cost of capital.
They are of the view that the UK no longer need to be tied to the EU framework, as Brexit has provided the country with a unique opportunity to the crucial regulatory changes that would enable London to enhance its premier financial status and serve the capital needs of listed companies in a more efficient and cost effective manner.
