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England beats Germany in rights issue reform race

The UK's head start on capital increase reforms could inspire Germany to rethink old rules

Soccer Football - Women's Euro 2022 - Quarter Final - England v Spain - The American Express Community Stadium, Brighton, Britain - July 20, 2022 England's Leah Williamson and Lucy Bronze celebrate their first goal scored by England's Ella Toone REUTERS/B

The outcome of the final of the Uefa Women's Euro 2022 between England and Germany on Sunday is still a matter of conjecture but when it comes to some parts of financial regulation, the UK is a clear winner.

Regulators far and wide are running schemes to lure companies back to their respective stock exchanges mean listing numbers are dwindling.

In the UK, the latest manifestation of this effort is the Secondary Capital Raise Review, which received praise for suggesting a higher limit to capital increases and was called into question for its progressive ideas about prospectuses.

In Germany, the UK review provokes envy. Several sources — bankers, investors and lawyers — made a passionate case for some overdue reforms when speaking to GlobalCapital.

Yes, they would also like more flexibility around secondary deals without pre-emption rights, which German law caps at 10% of a company’s share capital.

But the main problem, which effectively slammed the German market shut for anything but rights issues, is a 5% limit on the discount for those deals.

Looking at primary blocks and accelerated book builds across Europe, a 5% discount is at the lower end of the spectrum of where deals can get done.

Unable to go higher, German companies hit by this year’s many crises are forced into rights issues to raise cash — with all the exposure to market volatility that a rights subscription period brings.

The 5% limit is not even law. It is only referenced in a somewhat off-hand way in a report made by the legal committee of the German Bundestag way back in 1994. Yet not one of GlobalCapital’s sources can remember a deal that dared to cross this line for almost 30 years.

One could admire German dedication to rules, even those several decades past their best-before date (it’s not a stereotype if the writer is German).

But it is equally remarkable that after all those years, a victory for England could be the final push to inspire a change of strategy.

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