Five of Canada’s provincial securities commissions issued a notice on Thursday warning that some issuers may be abusing shareholders in the way they’re structuring exempt-rights offerings.
In particular, the regulators say in the notice that they have concerns with structures that are potentially abusive: “For example, we may have concerns where a rights offering is structured in such a way as to provide incentives for existing security holders not to participate, whether as a means to increase the proportionate interests of insiders, to transfer control to an unrelated third party or otherwise.”
The notice from the regulators — including the Ontario Securities Commission, the Autorité des marchés financiers, the Financial and Consumer Affairs Authority of Saskatchewan, the Manitoba Securities Commission and Alberta Securities Commission — also says that “stand-by commitments” conditional on limited participation could also create uncertainty and discourage participation in an offering.
The regulators indicate that they may raise comments with an issuer about the structure of certain rights offerings and the disclosure provided. Furthermore, if regulators believe the offering is contrary to the public interest, they may seek to cease-trade the offering.
“The rationale of the prospectus-exempt rights offering regime is to enable reporting issuers to raise capital while allowing existing security holders to participate based on their proportionate interests in an issuer,” the notice says. “Existing security holders should be able to make a decision regarding the exercise of their rights on a fully informed basis, free from any features of the offering designed to discourage participation or any other unfair influence.”