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The trickle of companies turning to the stock market for extra cash shows signs of turning into a torrent. The dash for cash may prove difficult to achieve in the current tough economic environment but, with the banks reluctant to lend money, most companies have little option but to go cap in hand to shareholders and City institutions.
After much speculation yesterday, mining giant Xstrata stepped up to the plate today with a heavily discounted, two-for-one rights issue at 210p. It wants the money to reduce debt. It is also buying Prodeco from its biggest shareholder, Glencore. This will allow Glencore to take up its full rights entitlement. The shares, which will not pay a dividend, lost 38p to 585p.
Some brokers say Xstrata rushed forward the cash call to beat rival Rio Tinto, down 72p at 1543p, to the punch. More rights issues in the sector cannot be ruled out. Rio yesterday conceded it needed extra money to meet its obligation to reduce debts by $10 billion (£7.1 billion) by the year-end. Word is it could tap shareholders for up to $8 billion.
Cookson is also launching a heavily discounted rights, offering to sell 2.55 billion new shares on the basis of 12 for one at 10p. That compares with the 25p a share it charged shareholders for a £273 million rights issue in 2002 when the group had debts of more than £700 million. The shares, which peaked at 776p last year, reduced the loss to 9p at 76p, after touching 44p.
It will come as no surprise that Goldman Sachs has cut its rating on Wolseley, down 10.7p at a low of 177.3p, from neutral to sell while slashing its target from 385p to 165p. The plumbing-equipment supplier tumbled on Monday after yet another profits warning.
Goldman says that if it does not wish to break its banking covenants, it needs to raise between £750 million and £1 billion, and sell its loss-making Stock Building Supply business in the US. But a rights issue will be dilutive and difficult to achieve. The absence of a rights issue, deteriorating end markets and rising debt levels will leave the group facing a challenging year, it adds.
Another company that may be forced to tap shareholders in the weeks ahead is private-equity specialist 3i, which parted company with its chief executive yesterday after confessing it had lost £762 million from the value of its top 50 assets. The shares lost a further 41p to 210¼p today despite chairman Baroness Hogg picking up 5000 at 213p each. The price has slumped from the 1000p level in the past year. Merrill Lynch has downgraded the shares to neutral and slashed its target from 620p to 232p. Talk of a rights issue also put a drag on hedge fund operator Man Group, which fell 18½p to 203¼p.
Investors generally were busily counting the cost of the cash calls, which meant shares were left to their own devices. The FTSE 100 index fell 81.69 points to 4213.51. Dealers said there was bound to be some profit-taking following the gains of the past few days.
DigitalLook.com says there is growing pressure on chief executives of Footsie 100 companies to start realising value. Just 27% of them are now trading at a discount to the money that could theoretically be raised by liquidating them. Sixteen of those are now worth less than half of their reported liquidation or “book value”.
The banks gave back some of the gains they enjoyed earlier this week following Barclays' open letter to the City. Lloyds Banking Group fell 12p to 88.9p, with Barclays down 6.4p at 100.6p, Royal Bank of Scotland, 1.2p cheaper at 20.1p, and HSBC, 27¼p off at 555¾p.
The prospect of two years of losses at British Airways, off 5.3p at 134.1p, could mean plenty of turbulence ahead for shareholders. UBS has cut its rating on the national carrier from buy to neutral and dropped its sights on the share price from 250p to 140p.
There was a lukewarm response to record full-year profits of £22 billion from oil giant Royal Dutch Shell, just 3p firmer at 1709p, but AstraZeneca fell 126p to 2734p after warning of problems in China.
