News Release
BCSC study shows public companies how to cut $170-million in capital-raising costs
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Date:
2002-11-04 -
Number:
2002/65
Vancouver – Canadian companies would get rid of $170-million in capital-raising costs over a five-year period by scrapping the current prospectus-based system public companies use to raise money from investors, the B.C. Securities Commission says.
The cost saving is one of the key findings in a cost-benefit study by the BCSC on its proposed new disclosure system, Continuous Market Access (CMA).
“CMA would provide better and more timely disclosure to investors than the current prospectus-based system,” said BCSC Vice Chair Brent Aitken. “This analysis shows that CMA is also a much faster and cheaper system for companies.”
Aitken explained that under CMA, companies that have completed an initial public offering would not have to issue a prospectus for future offerings. Instead, they would be required to keep public disclosure of their material information up to date at all times. Initial public offerings would also be faster under the system.
The study found that under the CMA system, companies would be able to go to market up to 56 per cent faster, thereby reducing the risk of missing market windows to raise capital at the best price.
“Our study found that companies of all sizes will save time and cost under CMA for both initial and future offerings,” said BCSC Economist Christina Wolf, who conducted the study.
“On average, it takes 10 months for companies to complete an initial public offering. Under CMA, document preparation time drops and the regulatory vetting period is reduced,” said Wolf. “It would shorten the capital-raising process by one to five months.”
The study results are based on an analysis of data that the commission gathered this summer in a cross-Canada survey of companies that raised money in public offerings during an 18-month period on the TSX and TSX Venture exchanges. The study’s key findings include:
· The CMA system would cut time to market by 16 to 56 per cent;
· Prospectus costs average $1.4-million for TSX issuers and $225,000 for TSX Venture Exchange issuers;
· While companies believe annual information form costs would rise 11 per cent under CMA, this cost would be offset by CMA benefits;
· Currently, companies spend 87 per cent of their time on areas of securities regulation that are already largely uniform across Canada; and
· 77 per cent of companies surveyed support the CMA proposal.
“Saving time and money under the CMA system would ultimately benefit investors,” said Wolf. “Lower offering costs leave more investor money to be spent on the company’s business, and time savings allow management to be more productive.”
For a copy of the report Better Disclosure, Lower Costs: A Cost-Benefit Analysis of the Continuous Market Access System, check the commission website at www.bcsc.bc.ca or call Andrew Poon, media relations, at 604-899-6880.
The B.C. Securities Commission is the independent provincial government agency responsible for regulating trading in securities and exchange contracts within the province.