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Office of Fair Trading to investigate rights issue fees

The Office of Fair Trading (OFT) has announced a formal investigation into rights issue and fundraising costs in the UK. It is believed that a number of parties have approached the OFT in the recent past and vented a number of concerns which have been taken on board. The investigation will look at the impact on consumers and investors from the current structure of rights issue fees and whether there is indeed any conflict of interest between banking operations.

When you consider that HSBC was charged in the region of £345 million for his record-breaking £12.5 billion rights issue last year we are talking about significant fees. Indeed the Prudential recently had to cancel a planned £14.5 billion rights issue although the company was still forced to cover costs of £81 million relating to the rights issue. It is unclear exactly who has complained to the OFT and exactly what the outcome of the investigation will be but it is some time since the rights issue and fundraising arena was investigated thoroughly.

The fees charged for fundraisings relate to the size of the issue, the risk related to the company and the risk in the marketplace. Different market environments will attract different fees and a potentially different structure to fundraisings.

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