There’s some good news for beleaguered publicly listed companies in Canada and their shareholders.
New streamlined securities regulations coming into effect in December will make it easier for public companies to raise money from their own existing shareholders through rights offerings.
The Canadian Securities Administration (CSA) has announced a new rights offering exemption that will reduce the costs and the time involved in doing a rights offering. They will also increase the allowable share dilution under such an offering from 25% to 100%.
“It’s going to be significantly quicker,” said Peter Brady, director of corporate finance for the BC Securities Commission (BCSC).
Issuers will find it easier to raise capital by offering new shares to existing shareholders – usually at a discount – without diluting their positions.
Don Mosher, a founder of B&D Capital Partners, said the changes are welcome but wonders why it has taken so long for securities regulators to make the changes.
“It was something that should have been done five years ago,” he said.
The changes should be particularly welcome by junior mining companies and their shareholders.
Most junior mining companies needing to raise money through the issuing of new shares have resorted to private placements.
Since only accredited investors are eligible for private placements, it meant that only a few wealthy investors were allowed to buy new shares, leaving all other shareholders with diluted stock.
A rights offering allows companies to raise capital by issuing new shares and offering them to existing shareholders, at a discount.
The problem is that few companies in Canada have used the mechanism because it was too costly and time consuming, especially for junior mining and exploration companies.
Under existing securities regulations, applying for a rights offering required a full review by securities commissions – a process that took 40 days. Once the review was done, the company was required to send out a detailed circular by mail to every single shareholder explaining the offer and what the money being raised was to be used for. That took another 40 days.
Mining companies had the added headache and expense of having to file a full review of all 43-101 technical reports – a massive paper pushing exercise that essentially recycled information already available to shareholders through Sedar filings.
“It probably cost you another $25,000,” Mosher said. “The average time involved in doing a rights offering on a mining company, with the commission review and the technical review – and this is commission numbers – (was) 109 days.
“Nobody used the rights offering regulations because they were too time consuming and too expensive. They made no sense.”
Under the revised regulations, the review by the securities commission will be scrapped, cutting the processing time in half. Issuers will no longer have to send out highly detailed circulars to all shareholders.
They will only need to send out short notices advising shareholders of the rights offering and pointing them to online information.
Brady said streamlined rights offering is a way of raising capital that is much more fair to existing shareholders.
“What this does is it expands who the company can reach out to,” he said. “They can go to all their shareholders. The person doesn’t have to have an asset or income threshold. It can go to everybody. So it’s fair.”
To protect shareholders, the CSA is adding a provision that holds the issuer to account, should shareholders buying shares in a rights offering later feel they were misled.
The new provision allows shareholders to file a complaint to the securities commission and sue the issuer, if they feel they bought new shares under misleading circumstances.
One other significant change is that the share dilution cap will be raised from 25% to 100%.
Under the current 25% cap, a company with a market capitalization of $10 million could only issue $2.5 million worth of shares. Under the new exemption rules, that same company would be able to raise $10 million.
The new exemption comes into force on December 8.
