On November 27, 2014, the Canadian Securities Administrators (“CSA”) published for comment proposed amendments (the “Proposed Amendments”) to the rules governing rights offerings in Canada. Rights offerings are offerings of securities to shareholders of the issuer existing at the time of the offering. The CSA acknowledges that rights offerings can be one of the fairer ways for issuers to raise capital as they provide security holders with an opportunity to protect themselves from dilution. However, the CSA also recognizes that reporting issuers very seldom use prospectus-exempt rights offerings because of the associated time and cost.
The Proposed Amendments are designed to make prospectus-exempt rights offerings more attractive to reporting issuers by creating a streamlined prospectus exemption (the “Proposed Exemption”). The Proposed Exemption updates requirements and removes the current regulatory review process prior to use of the rights offering circular. The CSA have also proposed increased investor protection through the addition of civil liability for secondary market disclosure and the introduction of a user-friendly form of rights offering circular.
The Proposed Exemption will not be available where there would be an increase of more than 100% in the number of outstanding securities of the class to be issued upon exercise of rights. The subscription price for a security issuable on exercise of a right must be lower than the market price at the time of filing the rights offering notice.
The Proposed Exemption can be accessed here and the CSA has asked for comments to be provided until February 25, 2015.
If you have questions about rights offerings, contact any member of Clark Wilson’s Corporate Finance & Securities Group.