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Plumbing giant Wolseley is paying millions of pounds in extra City fees to ensure it receives the £1 billion it needs to shore up its funding from an increasingly nervous investment community.
Wolseley today said it raising £781 million from shareholders in a rights issue and £270 million through a placing of shares with current and new investors.
It is paying about £51 million in fees - a whopping 5% of money raised - as it emerged its costs include underwriting fees on the share placing where investors have already signed up.
Rights issues are ordinarily underwritten by City banks to make sure that if investors do not want to subscribe to the new shares, the money is made available, the banks being left with the shares not taken up.
However, its so-called firm placing of shares with investors was also underwritten by Deutsche Bank and UBS, the brokers overseeing the fundraising.
Banking sources told the Evening Standard the firm placing was also underwritten because of "execution risk" - the fear some investors who have committed may not be able to stump up the cash.
The sources added: "Underwriting a firm placing delivers the certainty factor. It is just in case the investor cannot then deliver for whatever reason, perhaps because they are worried about their own finances. It is a function of market risk at the moment."
Wolseley's major investors include some of London's largest under-pressure institutions, as well as fund manager Silchester.
Premier Foods' £400 million fundraising this week also included an underwritten firm share placing that cranked up the group's costs to £25 million or 6% of funds raised.
Wolseley unveiled its financial restructuring today after revealing six-month losses of £880 million.
The rights issue and placing is priced at an underlying 40% discount to the current share price.
Wolseley has also negotiated €1 billion (£890 million) of new bank borrowings to cover debts that could be called in in 2011.
