We cannot be sure where we are in this crisis, but it is probably safe to say we are nearer to the middle than the start. And, so far at least, the corporate response has been surprisingly orderly.
More than 40 UK listed companies have issued new equity since the middle of March, raising in excess of £4bn, according to filings. These placings, open offers and subscriptions have on average expanded their issuers’ share capital by a fifth.
The floodgates opened after guidelines were loosened on how much it was acceptable to raise without seeking shareholder approval. The Financial Reporting Council’s Pre-Emption Group said on April 1 that individual circumstances could justify an increase to share capital of up to 20 per cent. The response from many investors was to fret about their rights being trampled as companies rushed to market.
Their worries proved mostly unfounded. Cash calls have been priced at an average discount of just 4.8 per cent to the previous day’s close. It would seem that the big institutions favoured by brokers during these overnight bookbuilding exercises won little in the way of preferential treatment. In most cases investors wanting to buy on broadly similar terms to the big guns had the option to do so on the open market.
It is worth noting also that small-caps add considerable noise to the above averages. Take for example Genedrive, a developer of Covid-19 testing kits that is listed on London’s Alternative Investment Market. Genedrive’s experience is not typical. The company raised £7m this week at a discount of 60 per cent to the previous close, though that was after the share price doubled in the preceding few days. Even after the placing it is still up more than 2,000 per cent since mid-March.
Reducing the screen to companies raising at least £20m makes things even more orderly. The average price discount falls to just 2.2 per cent and, remarkably, five of the 23 companies meeting that minimum fundraising sum through the period were able to issue their new shares at a premium. (At the time of writing, one company in the £20m-plus category, the pipe maker Polypipe, has launched a share placing that is yet to price.)
These narrow and non-existent discounts may reflect that a pandemic is not an ordinary recession. Fundraisings have mostly come from companies able to argue that, through no fault of their own, 2020 will be a lost year rather than an existential risk. Fashion retailer Asos, conference organiser Informa and recruitment agency Hays were all able to frame the sales pitches for their placings around the idea that they will emerge from the crisis in better health: weaker competitors were guaranteed to fail first and the survivors would be there to pick up the remains.
Might these last-man-standing arguments now be wearing thin? No two fundraisings are alike, which makes picking trends out of the data as challenging as making sense of daily mortality charts. Nevertheless, there is evidence to suggest some weariness.
Early movers including retailer WHSmith, Restaurant Group and fellow café operator SSP have all slumped below their placing prices over the past month as the worst-case scenarios for their travel divisions became the base case. It is also notable that no fundraising since late April has involved a premium. Insurance group Hiscox and JD Wetherspoon, the pub owner, both needed to offer discounts of at least 6 per cent to amass their desired amounts.
None of this is good news for companies in need of survival funds that were hesitating to ask in anticipation of a clearer outlook. It is getting harder for them to argue that what does not kill them will make them stronger, particularly if the investor base is growing less receptive to the pitch.
This week saw the UK market’s first, and probably not its last, Covid-19 rescue rights issue. Events organiser Hyve has asked existing shareholders for £126.6m by selling new shares at a hefty 67.8 per cent discount to Wednesday’s closing price.
Numerous big names in sectors such as retail, aerospace and real estate have been rumoured to be headed down the same complex and time-consuming path, having found their debt obligations and liquidity needs far exceeded the amounts that might be raised by non-pre-emptive share placings.
The discounts expected by equity investors to bail out these broken businesses will throw the relative calm of March and April into sharp relief. The next phase of the crisis, irrespective of how long it lasts and where it takes us, is very unlikely to be as orderly as the first.
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May 08, 2020 at 10:03AM
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The next round of Covid-19 fundraisings will not be as smooth - Financial Times
"smooth" - Google News
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