UK extends easing of cash call rules to coronavirus-hit firms

Britain is extending an easing of cash call rules to help UK-listed companies raise vital funds during a COVID-19 induced economic slump. Besides, Bank of England (BoE) interest rate-setter Michael Saunders said on Friday that it was “quite likely” that more stimulus will be needed for Britain’s COVID-hit economy.

“I consider it quite likely that additional monetary easing will be appropriate in order to achieve a sustained return of inflation to the 2% target,” Saunders said in a speech.

The Pre-Emption Group (PEG) of finance organisations, which issues guidance on rights issues and fundraisings, said on Friday it would extend the easing of its guidelines by a further two months to November 30.

Under normal “pre-emption” rights best practice, companies can raise up to 10% of their share capital without obtaining shareholder permission, but under eased guidelines this has been doubled to 20%.

Since the measure was introduced on April 1, British companies have raised 23.7 billion pounds ($31.5 billion) in the UK market and 125 of the issuances have been to raise funds urgently needed to weather the coronavirus crisis, PEG said.

Most notably, events company Informa raised 1 billion pounds in a sale equivalent to 19.99% of its share capital in April. Others such as online retailer Asos, National Express, WH Smith and reinsurer Hiscox have also made use of the eased rules.

This dash for emergency cash by British companies provoked some backlash from investors earlier in the year, though many remained largely supportive.

PEG said it had decided on the extension to allow a raft of expected equity offerings during the third quarter - traditionally a busy time for share placings as investors come back from their summer breaks - to take advantage.

“We have chosen 30th November to allow companies more time to assess any unforeseen consequences of COVID-19-related financial and cashflow developments,” PEG said in a statement.

It stressed, however, that the measures were always intended to be temporary and that it was important to return to the expectations within its statement of principles after that date.

PEG is based at Britain?s Financial Reporting Council, which regulates company auditors and governance.

Meanwhile, senior officials in British Prime Minister Boris Johnson’s office see only a 30%-40% chance that there will be a Brexit trade agreement with the European Union due to an impasse over state aid rules, The Times reported.

The United Kingdom left the EU on Jan. 31, turning its back after 47 years on the post-World War Two project that sought to build the ruined nations of Europe into a global power.

The British exit followed more than three years of wrangling over an exit deal since the 2016 referendum that sent shockwaves through global financial markets. Since Brexit, talks on a new trade deal have so far made little headway.

Britain’s desire to use state aid to build up its technology sector means that Johnson’s top ministers are unwilling to budge in negotiations on state aid, The Times said.

“Inside No 10, they now think there is only a 30 to 40 per cent chance that there will be an agreement,” James Forsyth, political editor of The Spectator, wrote in a column. “The sticking point is not fish; I am told that there is a ‘deal to be done’ there - but state aid.”

Talks on the trade deal are due to resume in London next week. The EU says Britain cannot retain all the economic and trading benefits it had as an EU member, while London says Brussels is not showing enough flexibility.

Failure to reach a trade deal would hammer financial markets as nearly a trillion dollars in trade, from car parts and medicines to lamb and fish, would be thrown into turmoil.

The UK wants the percentage of fish quotas reserved for UK vessels in British waters to increase from some 25% now to more than 50%, The Times said.

Separately, new car registrations in Britain fell last month by 6% in annual terms, a “disappointing” turnaround after July’s increase when showrooms reopened after the coronavirus lockdown, the Society of Motor Manufacturers and Traders (SMMT) said on Friday.

August is usually a quiet month for new car sales and the drop follows an 11% jump in July - the first increase in 2020.

“The decline is disappointing, following some brief optimism in July,” SMMT chief executive Mike Hawes said. “However, given August is typically one of the new car market’s quietest months, it’s important not to draw too many conclusions from these figures alone.”

Reuters