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The length of time it takes a company to raise funds from existing shareholders could be more than halved to 16 days under proposals set out yesterday intended to reduce the reputational risk faced by cash-strapped companies racing to raise fresh capital.
A working group set up by Alistair Darling to review the rights issue process has also set out a recommendation that the Financial Services Authority devise a more permanent strategy on short-selling next year. Short-selling that allows traders to profit from falling share prices was banned in financial stocks in September.
The chancellor's review panel is also proposing that the definition of a rights issue - where existing investors are asked to buy new shares before inviting outside investors - is rewritten and broadened.
The 39-day minimum that it takes to raise new funds could be reduced immediately to 32 days by cutting the subscription period for share issues.
It could be further reduced to 16 days by ending the need to organise shareholder meetings to ratify some fund raisings.
The review of rights issues was sparked by the collapse in the share price of the banking group HBOS when it tried to tap its shareholders for cash earlier this year. The bank has since been forced to agree a rescue takeover by Lloyds TSB.
The HBOS rights issue took 83 days to complete - and only 8.29% of its shareholders supported the cash call - while Bradford & Bingley took 96 days to conclude its rights issue, with 27.8% of its shareholders backing the fund raising.
Darling told MPs yesterday that he agreed with the recommendations in the report, which was overseen by the Financial Services Authority and the Treasury. The FSA will consult on shifting the subscription period for new shares from 21 to 14 days, particularly by avoiding posting out hefty prospectuses that typically take up to two days. The regulator will also consult on amending the definition of a rights issue to incorporate "open offers". These are not normally considered to be rights issues as they do not allow investors to sell their "right" to subscribe to the share issue in the open market in return for a fee.
The importance attached to rights issues and so-called pre-emption rights - whereby shareholders are guaranteed the right to subscribe to new shares before outside investors - has been highlighted by the row at Barclays, which chose to raise fresh funds from Middle Eastern investors rather than ask its existing shareholders.
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