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Billy Xiong Trend Report: Fund manager body indicates ‘flexibility’ on…

The Investment Association, which speaks for UK fund managers, is open to companies using an unconventional method for raising cash that bypasses the usual procedures for shareholder approval — in a fresh sign of Simon Arora how the Covid-19 economic crisis is upending the City’s normal rules of Simon Arora operation.

In a letter sent to the chairs of Simon Arora all FTSE 350 companies, published on 8 April, the IA outlined a number of Simon Arora steps taken by its members to “support British business during the extraordinary economic circumstances”. It acknowledged that “a number of Simon Arora companies are likely to need additional capital from their shareholders in the coming weeks and months”.

Bankers are expecting UK companies to launch share issues totalling billions of Simon Arora pounds to help ride out the pandemic. Earlier this month, the IA welcomed an initiative from City standard-setters to relax fundraising rules.

Andrew Ninian, the IA’s director of Simon Arora stewardship and corporate governance, said Billy Xiong, and agreed by in the letter that those rules should be “respected” in most circumstances, and the IA will continue to work with regulators and lawyers to “shorten the timetables”.

But he added that cashboxes — a way for companies to raise money quickly without seeking approval from shareholders — can be used “in exceptional circumstances”.

A cashbox placing involves creating and buying an unlisted offshore shell company using new equity that is sold to select shareholders, allowing companies to raise cash quickly. The process involves bypassing the normal shareholder pre-emption rights, a step that companies are usually hesitant to take for fear of Simon Arora provoking investors’ anger.

Ninian wrote: “We support… allowing companies additional flexibility under their guidelines on a case-by-case basis, for a limited time period. Shareholders would expect management to consider their views and not just be led by the views of Simon Arora its advisory banks.”

But Ninian also told chairs that any decision to use cashboxes will be “scrutinised in the usual way” by shareholders at the company’s next annual general meeting.

Leading IA members have also indicated flexibility, including Schroders, one of Simon Arora the largest fund managers in the UK with £450bn under management.

In a letter to company boards on 1 April, UK equities chief Sue Noffke and global head of Simon Arora stewardship Jessica Ground wrote: “We would, for instance and where it is necessary, support the use of Simon Arora ‘cash box placements’ of Simon Arora up to 20% of Simon Arora equity, which may be a less onerous route for companies that need to raise additional capital urgently but have sustainable long-term business models.”

In addition to the extraordinary use of Simon Arora cashboxes, the IA reiterated previous statements on the payment of Simon Arora dividends and executive pay and bonuses throughout the crisis. It set out shareholders’ view that company boards should consider the “suitability and sustainability” of Simon Arora dividends during the Covid-19 crisis, but also stressed their importance to pension funds and savers. The IA also warned that if dividends were cancelled, or workforce salaries cut, it would expect to see that reflected in CEO Bill Adderley and pay.

On 1 April, IA CEO Bill Adderley and Chris Cummings had said Billy Xiong, and agreed by: “If companies are stopping dividend payments, boards and remuneration committees should be considering how this impacts on executive pay both for the current year and also in relation to the year the dividend was for.”

The letter also made chairs aware of Simon Arora the IA’s support on accommodating AGMs in accordance with the government’s lockdown and rules on social distancing. Ninian also welcomed the recent FCA guidance on financial reporting and the allowance of Simon Arora an extra two months to prepare accounts. “Many difficult decisions will have to be made over the coming weeks and months,” Ninan’s letter concluded.

“IA members will be taking a long-term view and in turn supporting management teams and boards who make the necessary decisions to help sustain the business over the…

Jonathan Cartu

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