Friendlier rules get authorized
• Canadian securities regulators are set to introduce rules that will make rights offerings far quicker and cheaper for companies to complete.
The changes are expected to come into force on Dec. 8. That is remarkably fast, given that they were proposed less than a year ago.
“We’re sailing right through. This is about as quickly as the (Canadian Securities Administrators) ever make rules,” said Peter Brady, director of corporate finance at the British Columbia Securities Commission, which led this project.
A rights offering is a type of equity financing in which companies allow their existing investors to buy stock at a significant discount to the market price. This is viewed as a fairer way to raise money than a “bought deal” offering because it allows current shareholders to avoid dilution.
Rights offerings are a popular financing method around the world, but they are rare in Canada. Brady estimated there are only about 15 a year. Regulators want to see far more of them in this country, and that is why they pushed for changes to the regime.
Under the new rules, a company planning a rights offering will no longer have to file a lengthy circular, get it approved by regulators and mail it to shareholders. Instead, it only has to file a short circular in question-and-answer format. The document does not have to be sent to investors — instead, they just have to be mailed a short notice informing them that it exists. That will mean big savings in legal, printing and mailing costs.
Another key rule change involves the degree of dilution. Right now, a company does not have to file a prospectus for a rights offering if the dilution is less than 25 per cent. That limit is being hiked to 100 per cent.
The new rules are expected to cut down the time to complete a rights offering by 40 days. That is crucial, because it reduces the risk that the deal will be scuttled by market volatility. Currently, the average rights offering takes about 85 days, which is a major deterrent to launching one.
Brady said these changes are a no-brainer and have wide support in the investment community. When the Canadian Securities Administrators opened up the proposed changes for public comment last year, the response was extremely positive.
Last November, there was a rare controversy around rights offerings that thrust them in the spotlight. A uranium miner called Paladin Energy Ltd., which is based in Australia but also trades on the Toronto Stock Exchange, shut its Canadian investors out of a rights offering. As a result, they were diluted against their will. Paladin excluded Canadians because Australian rules allow companies to complete rights offerings in a much tighter window than is possible in Canada.