United Kingdom: the floating conversion price, pre-emption and placings

A company listed in the United Kingdom, on the Main Market, AIM or Aquis, can issue a convertible whose price is set against VWAP at each conversion and can run a standby equity facility. Nothing in UK law fixes a conversion price. The discipline is section 560 of the Companies Act 2006, which tests pre-emption once, when the conversion right is granted rather than when shares are issued.

Key takeaways

• Pre-emption is tested once, at grant. Section 560(1) defines equity securities to include rights to convert securities into ordinary shares; section 560(2) makes the grant an allotment and excludes the later allotment made pursuant to it. Conversions need no fresh disapplication.
• The one hard floor is nominal value. Section 580(1): “A company's shares must not be allotted at a discount”, with the allottee liable under section 580(2) for the discount plus interest. That, not a listing rule, is what stops a sub-penny issuer.
• The 10% discount rule has a carve-out that decides most deals. UKLR 9.4.13 requires shareholder approval above a 10% discount to the middle market price, but 9.4.13(4)(b) disapplies it for an issue of shares for cash under a pre-existing general authority to disapply section 561.
• The prospectus threshold moved sharply. Under the regime in force from 19 January 2026 the threshold above which a further issue requires a prospectus rose from 20% to 75% of issued share capital in 12 months — the most capacious in this region.
• No holding period applies. Newly issued ordinary shares admitted to trading are freely transferable, with no UK analogue to restricted securities, which is why a London deal prices tighter than an unregistered US one.

How UK-listed issuers actually raise capital

Two venues, two rulebooks. The Main Market operates under the UK Listing Rules, which since 29 July 2024 collapse the old premium and standard segments into a single equity shares (commercial companies) category. AIM is a multilateral trading facility with its own rules and a permanent nominated adviser. AIM companies are not subject to the UK Listing Rules, so UKLR 9.4.13 does not reach them; what binds there is the Companies Act and investor voting policy.

The standard transaction is an accelerated bookbuild launched after the close and priced overnight, increasingly followed by a retail offer at the placing price. Where authority is short, a cashbox placing is used: shares are issued for non-cash consideration, so section 561 does not bite. It is well established, and visible to shareholders, so it is a judgement about governance capital as much as law.

Why a moving conversion price is not a UK problem

The provision that makes this market work is section 560. Subsection (1) defines “equity securities” as ordinary shares or “rights to subscribe for, or to convert securities into, ordinary shares”. Subsection (2) then does the load-bearing work: references to allotting equity securities include the grant of such a right and do not include the allotment of shares pursuant to it.

For an issuer that means the pre-emption question is asked at signing, not at every drawdown. A disapplication has to be in force on the day the convertible is issued; conversions two years later at a price nobody could have known need no fresh special resolution. The counterpart is unforgiving: authority must exist at grant, so a note maturing after the disapplication expires converts under a resolution that has not been passed. Diarise the expiry against the maturity, not the signing date. Where an issuer would rather not spend authority this year at all, convertible notes for listed issuers defer the question — but only its timing.

The floor is nominal value. Section 580(1) says a company's shares must not be allotted at a discount, and section 580(2) makes the allottee liable for that discount with interest. A UK micro-cap trading at a fraction of a penny therefore subdivides each ordinary share into a low-nominal new ordinary and a valueless deferred share before signing anything with a floating price — the same manoeuvre as a German capital reduction. It is the first item on the timetable, not a closing condition.

Pre-emption, and the arithmetic of a disapplication

The retail tranche, and what it does to facility sizing

The Pre-Emption Group principles are not law, and a company can ask for more — but not without consequence, because institutional voting policies follow them closely. A routine annual disapplication runs to 10% of issued share capital for any purpose and a further 10% for a specified acquisition or capital investment, and a company following the template is additionally expected to make room for existing retail holders through a follow-on offer rather than placing every share institutionally.

That expectation is what actually sizes a facility here. A retail follow-on offer takes days to run, needs its own document, and cannot be compressed into a drawdown notice, so a facility assuming the whole authority can be drawn to one subscriber is over-sized on paper before anyone reads the discount. Size a share subscription facility or a committed equity facility against the institutional part only.

When new shares become dealable

There is no UK holding period. Once admitted to trading the new shares rank alongside the existing line and are freely transferable, which is the biggest structural difference between a London deal and a US PIPE transaction — set out on PIPE or registered direct. For a rolling facility, tranches are normally covered by a block admission rather than a fresh application each time.

The exception is a US-connected investor. Shares placed with a US person under a US exemption are restricted securities as a matter of US law whatever their UK status, and the holder is then in the world described on Rule 144 and restricted securities. That distinction belongs in the placing agreement.

What to have on the table before the first call

1. Authorities in force

   The allotment authority and disapplication resolutions, how much of each is spent, and when they expire.

2. Nominal value against the current price

   Whether a subdivision into low-nominal ordinaries and deferred shares is needed before signing, and how long that takes.

3. Nomad or sponsor position

   On AIM the nominated adviser's view; on the Main Market whether a sponsor is required.

Send the authorities, the free float and the nominal value for an indicative structure.

• All markets
• Ireland
• Australia
• Germany
• Capital raising for listed companies

Primary sources

• Companies Act 2006, section 560 — meaning of equity securities
• Companies Act 2006, section 580 — no allotment at a discount
• FCA Handbook — UKLR 9.4.13
• Pre-Emption Group — Statement of Principles
• FCA PS25/9 — public offers and admissions to trading
• London Stock Exchange — AIM Rules for Companies

Capital raising in the UK: frequently asked questions

Do AIM companies have pre-emption rights?

A UK-incorporated AIM company is subject to section 561 of the Companies Act 2006 in the same way as a Main Market company, because pre-emption is a matter of company law rather than of the AIM Rules. What differs is the rulebook around it, not the statutory right itself.

Can a UK convertible have a conversion price that moves with the market?

Yes. Neither the Companies Act 2006 nor the UK Listing Rules requires a conversion price to be fixed at issue. Section 560 treats the grant of a right to convert securities into ordinary shares as an allotment of equity securities, and excludes the allotment of shares made pursuant to that right. The analysis is done once, at issue.

When does a UK issuer need a prospectus for a follow-on raise?

Under the regime in force from 19 January 2026, a prospectus is required where a further issue of equity securities exceeds 75% of the issued share capital over a 12-month period. That replaced the previous 20% threshold and removes the prospectus from most secondary raisings.

What stops a sub-penny company using a floating conversion price?

Section 580 of the Companies Act 2006: shares must not be allotted at a discount to nominal value, and an allottee is liable to pay the company an amount equal to the discount with interest. A company trading near its own nominal value reorganises its share capital before it signs.

Are placing shares free trading in the UK?

Newly issued ordinary shares are freely transferable once admitted to trading, and there is no UK holding period. A US investor who acquires them under a US exemption still holds restricted securities as a matter of US law, so that position is dealt with in the placing agreement.