Issue Indigestion

Companies needing cash must show creativity when fund raising.

The window of opportunity for listed companies considering cash calls could already be closing. After a glut of firms went to shareholders for extra funds at the start of the year (see “Cover Yourself”), one financial company—banking giant HSBC—may have changed the game with its own monster fund raising.

In early March, the bank announced a discounted £12.5 billion (€13.5 billion) rights issue, a move chairman Stephen Green said would “enhance our ability to deal with the impact of an uncertain economic environment and to respond to unforeseen events.” There is now talk that HSBC’s rights issue could mark the top of the market for fund raising, due in part to its sheer size.

At Wolseley, a London-listed building-materials group, management concluded earlier in the year that a rights issue would be the best way to shore up the company’s balance sheet. But by March, following HSBC’s move, chairman John Whybrow told analysts on an earnings call that it became “apparent there are significant issues regarding [sub-underwriting] capacity.”

Instead, Wolseley has had to be creative. In a complex, three-part fund raising, the group will first raise £270m in a placement of new shares to institutional investors; next it will raise £780m through an underwritten rights issue; and finally, it will consolidate its shares on a 10-for-1 basis. The company expects to raise a total £1 billion in the early part of this month.

The capital raising isn’t as straightforward as it could have been, and Wolseley has admitted that it will be dilutive for smaller shareholders. When, as Whybrow noted, “we live in extraordinary times,” companies are willing to get their hands on fresh funds in any way they can.

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