Europe's rights issues to raise record $100 bln

Deals

Plans by Switzerland's UBS to raise over $15 billion and other big rights issues from European banks and cash strapped firms will see investors asked for a record $100 billion this year.

Companies have already raised $17.7 billion from rights issues and a bulging pipeline is set to see another $83 billion raised, according to Thomson Reuters data. That would easily exceed the $57 billion raised last year in Europe and $74 billion globally, the previous highest totals.

Banks have the biggest deals in the pipeline as they attempt to rebuild capital positions that have been hit by multi-billion dollar writedowns on risky assets and build a bigger capital cushion to face a tough outlook and demands from regulators.

“In times like this it's better to have more capital than less,” said Alan Beaney, head of investment at Principal Investment Management, which manages about Ł1 billion.

“They are addressing the concerns the market has about banks but we may go back and see that they didn't need all the money,’ he said, noting that in recent years the trend for banks and other firms has been to buy back shares and raise dividends.

In addition to UBS, Royal Bank of Scotland is in the process of raising Ł12 billion ($23.8 billion), the biggest rights issue ever. Its UK rivals HBOS and Bradford & Bingley and France's Credit Agricole will follow suit later in the summer.

Consumer products firms are also tapping investors to fund deals: Britain's Imperial Tobacco plans to raise $9.6 billion to pay for the purchase of Altadis and Danish brewer Carlsberg is seeking $6 billion to buy Scottish & Newcastle.

“Investors were overweight cash at the start of the year, so there is liquidity out there,” an equity capital markets banker said, downplaying the risk that the market is saturated.

“It's not just a story about banks shoring up their balance sheets. There are also capital raisings for growth opportunities that's encouraging and should continue,” he said.

Against a tough economic and stock market backdrop, most of the rights issues have been at deep discounts to prevailing market prices, which heavily dilutes existing shareholders and can put pressure on share prices.

RBS shares have fallen 12% since trading “ex-rights” a week ago, as the sheer size of its offer and the crowded pipeline for new issues has left many investors more selective about taking up all their rights.

US investors have also sold RBS shares as they can't participate in the offer, and there is concern underwriters will be left with a sizeable “rump” of shares to place, dealers said. RBS has also been hit by arbitrage-related selling, reflecting greater volatility that is common during a rights period.

RBS and most other firms seeking funds have underwritten their issues, however, so they are guaranteed to raise the cash. Rights issues offer existing shareholders the option to buy extra stock at a discount to the market price. Investors can therefore pay to maintain their percentage stake in a firm or see their stake diluted if they don't take up the rights option.

They are used more in Europe than elsewhere. European firms raised more than three-quarters of last year's global total and that has been the trend over the last decade -- in 2006 the $56 billion raised in Europe was almost 90% of the global total, according to Thomson Reuters data. (Reuters)

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