Hunters and hunted in new dash for equity markets By Tom Cane, Anousha Sakoui and Kate Burgess January 22 2009 23:53
http://www.ft.com/cms/s/0/75620b9c-e8c2-11dd-a4d0-0000779fd2ac.html?ncli ck_check=1 A sea change is afoot in the way UK companies finance themselves, with boards now turning to the equity markets to strengthen their balance sheets as the debt market shrivels. On Tuesday, the cream of the Citys capital markets community gathered at Londons Royal Horseguards Hotel, which overlooks the Thames, to discuss reforms proposed by the Treasury and the Financial Services Authority, to make rights issues easier to execute. As market volatility increases, regulators and market participants are determined to avoid a repeat of the disastrous rights issues in the banking sector last year. In the scramble to raise money for troubled financial groups, there were several instances late last year notably at Barclays of companies overlooking existing shareholders in a dash for fresh equity. This week, Tullow Oil announced it was raising £400m through what is called a cash-box placement, allowing it to issue up to 10 per cent of its existing share capital without offering investors pre-emption rights. Bankers argue that rights issues, where investors are given first refusal on new shares, are time-consuming and cumbersome. Investors, however, are determined to preserve their rights to protect their stakes from dilution. Conscious of such tensions, regulators are now proposing to cut the time it takes to carry out a rights issue from 21 to 14 days, a move that would significantly diminish risk for issuers. One attendee at Tuesdays meeting said the timing of FSAs declaration was no coincidence there has been a push to have reforms in place in time for the corporate reporting season, which bankers say will coincide with large volumes of equity issuance. We expect to see those companies that wish to raise equity announce their intentions at their full-year results, around the end of February, says Matthew Westerman, global head of equity capital markets at Goldman Sachs, a speaker at the symposium. Depending on the health of their balance sheets, companies are seeking equity for different reasons. Many are struggling with huge debt piles and looming refinancing deadlines and need equity to weather the storms ahead. They will be working hand in hand with lenders to secure secure simultaneous debt renegotiations, for example on covenants.The view of what is the right capital structure has shifted, says Matthew Koder, joint head of global capital markets at UBS. Equity raisings will now have to be associated with confidence from external stakeholders that the capital structure is sound [and] that their debt profile is satisfactory. Other companies, in more robust health, will raise equity opportunistically for capital investment and deal-making. Youll see the hunters and the hunted, says one banker. When it comes to the manner of raising equity, some observers believe the volume of the likely dash for cash will mute concerns among existing investors about the overriding of pre-emption rights and resultant dilution. One possibility is that institutions with existing shareholdings actually approach companies to arrange private placings before the companies are forced into rights issues, says Will Pearce, of Herbert Smith. Investors warn that they will look at each capital raising carefully and they will not back every issue. Last year, investors refused to back efforts by Taylor Wimpey, the builder, to raise £500m. Companies may seek to move quickly to secure the funding they require. But being right at the head of the queue could also prove dangerous. You want to get in before the moneys run out, says Charles Howarth of Herbert Smith. But perhaps not be the first to put your toe in the water and get it bitten off. Copyright The Financial Times Limited 2009 --------------------------------------- Jayson Funke Graduate School of Geography Clark University 950 Main Street Worcester, MA 01610 _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
