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ABI changes could prompt wave of rights issues

Changes to guidelines on rights issues by the Association of British Insurers could lead to a fresh wave of capital raising by firms, says Seven Investment Management director Justin Urquhart Stewart.

The ABI changes announced today mean that companies will now be able issue new shares worth up to two-thirds of their existing capital without holding an extraordinary shareholder meeting.

The previous limit was one-third of shares. The purpose of the change is to make it easier for companies to launch issues at a discount.

The change follows recommendations by the Rights Issue Review Group, set up by the Treasury.

The new guidance requires all board members of a company to stand for re-election at the next AGM, unless the additional headroom involves the issuance being lower in amount than one-third of the company’s value.

ABI director of investment affairs Peter Montagnon says: “ABI members fully support the need to speed up the rights issue process where possible, providing the vital principle of pre-emption is respected.

The ABI guidelines are not legally binding but are considered best practice and form the basis of shareholder voting decisions.

Urquhart Stewart says: “The previous system was practically Victorian leaving companies that wanted to raise capital exposed like Hermit crabs trying to change shells.

“Anything that improves that process is welcome and I would expect a number of insurers to conduct rights issues now as some will need to raise capital.”

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