U.K. Rights Offers to Be Swifter Under Plans Darling to Adopt

By Caroline Binham

Nov. 25 (Bloomberg) -- Companies trying to raise new capital through U.K. rights offers may see the time needed to complete the process slashed by more than half -- to 16 days from a minimum of 39 days -- under a Treasury-led group's proposals.

Chancellor of the Exchequer Alistair Darling said in his annual pre-budget report speech to Parliament yesterday that he would adopt the Rights Issue Review Group's recommendations. They include reducing the offer subscription period to 14 days from 21 days. The Financial Services Authority, Britain's market regulator, will also consult on a new 14-day capital raising.

``The process to allow U.K. banks to raise money in the markets through rights issues is too slow and complex,'' Darling said in London yesterday. The new rules ``will make the process for raising equity capital faster and simpler.''

U.K. banks -- including Standard Chartered Plc, which announced yesterday that it is planning to tap shareholders for 1.8 billion pounds ($2.7 billion) -- have used rights offers to raise capital. Barclays Plc yesterday won shareholder support to raise 7 billion pounds in an offer that bypasses so-called preemption rights.

European corporate law and securities rules, unlike in the U.S., typically require companies to offer existing shareholders a first crack at new stock, called preemption rights. Sales can take the form of rights offers, which entitle shareholders to buy new stock, often at a discount, or to sell their allotment on to someone else. Companies must get investor approval to bypass common shareholders in most cases.

HBOS Offer

HBOS Plc, the U.K.'s largest mortgage lender, in July held the European rights offer with the largest value of unsold stock this decade, with shareholders claiming only 8 percent of its 4 billion-pound sale. The offer took more than 11 weeks as HBOS shares plunged 43 percent. HBOS is being bought by Lloyds TSB Group Plc. The FSA moved to put in place an emergency rule that banned short-selling shares in companies undergoing rights offers in June because of the hammering banks' share prices took.

``Capital raising is vital for firms, and the greater efficiency created by these proposed changes should work to reduce the cost of raising capital and help preserve the integrity of the market, which would benefit firms and their shareholders,'' said Sally Dewar, managing director of wholesale markets at the FSA, yesterday in an e-mailed statement.

The Review Group is comprised of the FSA, U.K. Treasury, Bank of England, the Department of Business, Enterprise and Regulatory Reform, as well as companies, law firms and trade groups.

Short-selling is when hedge funds and other investors sell shares they don't own in the hope that their price will fall. If they decline, the investors buy them back at the cheaper price, return them to their owners and pocket the difference.

To contact the reporters on this story: Caroline Binham in London at cbinham@bloomberg.net