Enhanced Rights Issue Framework: Temporary Relief Measures to Facilitate Fund Raising by Listed Issuers.
In this article, Gan Shao Qi discusses some of the recent measures announced to facilitate fund raising by listed issuers through a rights issue in Malaysia to assist companies and businesses that require access to immediate funding due to Covid-19.
On 10 November 2020, Bursa Malaysia Securities Berhad (“Bursa Malaysia”) and the Securities Commission Malaysia jointly announced, as a temporary relief measure, an enhanced rights issue framework1 (“Enhanced Rights Issue Mandate”).
NEW ISSUE OF SECURITIES UNDER BURSA MALAYSIA’S MAIN MARKET LISTING REQUIREMENTS (“LISTING REQUIREMENTS”)
When a listed issuer intends to issue new securities, it is required to obtain prior shareholders’ approval. Such shareholders’ approval can take the form of a “general mandate” or where the issue of new securities departs from the requirements of the general mandate, the approval of the shareholders is to be obtained in a general meeting for the precise terms and conditions of the issue.
GENERAL MANDATE EXPLAINED
Before the Enhanced Rights Issue Mandate and the 20% General Mandate described below, an issuance of securities can be undertaken by a listed issuer with a general mandate from its shareholders if the total number of shares or convertible securities to be issued, when aggregated with the total number of any such shares or convertible securities issued during the preceding 12 months, does not exceed 10% of the total number of issued shares (excluding treasury shares) of the listed issuer2 (“General Mandate”).
If the 10% limit is exceeded, the listed issuer will have to obtain shareholder approval in a general meeting with the precise terms and conditions of the issue before undertaking the issue of securities. A General Mandate, after it is obtained, authorises the listed issuer’s board of directors to decide on the details of the issuance and allotment of securities as and when it deems appropriate.
Where a General Mandate is sought, the listed issuer is required to include in the statement accompanying the proposed resolution3 information such as:
- whether the mandate is new or a renewal;
- where such mandate is a renewal or has been sought for in the preceding year, the proceeds raised from the previous mandate (if any) and the details and status of the utilisation of proceeds; and
- the purpose and utilisation of proceeds from the General Mandate sought4.
One of the benefits of a General Mandate is that it expedites the fund raising of a listed issuer as a general meeting is not required to approve each capital increase. It also protects shareholders against dilution in their shareholding, as any issuance of securities will have to comply with the conditions in an approved General Mandate.
INCREASE IN GENERAL MANDATE LIMIT TO 20%
On 16 April 2020, Bursa Malaysia, recognising the need to give listed issuers fundraising flexibility to meet their working capital and operational expenditure during this challenging time, announced that the 10% limit under a General Mandate will be increased to 20%5 (“20% General Mandate”). Listed issuers have until 31 December 2021 to utilise the 20% General Mandate.
In the statement accompanying proposed resolution, a listed issuer must disclose the views from its board of directors on whether the 20% General Mandate is in the best interest of the listed issuer and its shareholders, as well as the basis for such views.
ENHANCED RIGHTS ISSUE MANDATE
Pursuant to the Enhanced Rights Issue Mandate6, an eligible listed issuer7 can have added flexibility to undertake a rights issue because an eligible issuer can now issue new rights ordinary shares to its existing shareholders on a pro rata basis, up to 50% of the total number of issued shares (excluding treasury shares).
In addition to the other requirements under Chapter 6 of the Listing Requirements for a rights issue, a listed issuer must also comply with the following in order to utilise an Enhanced Rights Issue Mandate:
- The Enhanced Rights Issue Mandate is only applicable for eligible listed issuers with existing controlling shareholders. A controlling shareholder is a person who is, or a group of persons who together are, entitled to exercise or control the exercise of more than 33% (or such other percentage as may be prescribed in the Take-Overs and Mergers Code as being the level for triggering a mandatory general offer) of the voting shares in a company, or who is or are in a position to control the composition of a majority of the board of directors of such company8.
- The eligible listed issuer must procure the approval of its shareholders for the Enhanced Rights Issue Mandate at a general meeting. In the statement accompanying proposed resolution to seek approval for the Enhanced Rights Issue Mandate, in addition to the information as stipulated in Paragraph 6.03(3) of Chapter 6 of the Listing Requirements (as set out above), the eligible listed issuer has to include the views of its board of directors that the Enhanced Rights Issue Mandate is in the best interest of the eligible listed issuer and its shareholders, and the basis for such views.
- The Enhanced Rights Issue Mandate is only applicable for a rights issue of ordinary shares and not any other types of securities.
- The eligible listed issuer must procure irrevocable letter(s) of undertaking from its existing controlling shareholders to subscribe for their full entitlements under the rights issue.
- The rights shares are not priced at more than 30% discount to the theoretical ex-rights price.
As with the 20% General Mandate, the Enhanced Rights Issue Mandate may be utilised by an eligible listed issuer to issue rights shares until 31 December 2021.
With the 20% General Mandate (which also applies to other issue of securities such as a private placement) and the Enhanced Rights Issue Mandate, eligible listed issuers would be able to raise funds from their existing shareholders in a shorter time frame to meet their capital and financial needs.
An eligible listed issuer may issue rights shares of up to 50% of its total issued shares through the Enhanced Rights Issue Mandate in addition to the 20% General Mandate, irrespective of whether it has previously obtained or utilised the 20% General Mandate. It is hoped that this would assist eligible listed issuers in addressing and overcoming some of their operational challenges as a result of Covid-19.
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