3.1 The amount of the discount (or its equivalent), at which equity is issued for cash other than to shareholders, is a major concern to shareholders and the Pre-emption Group will keep this matter under review. Initially, the Guideline for companies and their advisers, is that they should seek to restrict the discount to a maximum of 5% of the middle of the best bid and offer prices immediately prior to the announcement of an issue or proposed issue.
3.2 In general terms, "discount" is defined as the aggregate of (a) the amount by which the offering price differs from the market price, and (b) underwriters' gross spread and/or sponsors' fees. Third party expenses other than sponsors' and underwriters' expenses, are excluded. In the case of issues of a new class of deferred equity in the form of convertibles, warrants or other deferred equity, the amount of the opening market price above the issue price will be regarded as part of the discount.
3.3 It is emphasised that this discount refers to non pre-emptive issues for cash. There is no question of limiting the discount in a fully pre-emptive issue.
3.4 Where the issuing arrangements involve a long marketing period, and consequently a pricing date subsequent to the announcement date of the proposed issue, the Guideline of a maximum 5% discount refers to the time and date of the pricing rather than the time and date of the announcement of the issue. In such circumstances, the I.P.C.'s wish to emphasise their concern that where the market price has reacted adversely to the news of a forthcoming issue, thereby creating the potential for a significant transfer of value, directors should have regard to this in deciding whether or not to proceed.