Derek Pain: Are cash-strapped firms rights on the money?
No Pain, No Gain
Saturday 27 June 2009
Quoted companies are stumbling over themselves to pull in cash from shareholders. The stampede to announce rights issues or placings could be regarded as the most significant indication yet that the stock market has, in fact, turned the corner. On the other hand, the more cynical among us will no doubt claim that over-borrowed, cash-strapped businesses are tapping investors while a soon-to-close window of opportunity still exists.
In the main it is the large groups that have adopted the rights issue approach. Many placings, but by no means all, are the product of smaller fry. Since banking giant HSBC launched the current pursuit of shareholder cash in early March with a blockbuster £12.5bn rights, similar, although smaller, exercises have emerged with increasing regularity. Cash calls have exceeded £50bn since HSBC set the money rolling.
Over a few days last week, three blue chips produced begging bowls. Engineer GKN and brewer Marston's sought £423m and £176m respectively through traditional rights issues. Punch Taverns called for £375m, half through a rights with the rest already in the bag via a placing among privileged institutions.
I suppose Punch deserves some credit for giving shareholders the right to subscribe for some of the shares. Too often, small shareholders are excluded completely from cash-raising exercises with just a fashionable minority selected to take up placed shares. I believe such exercises are undemocratic. All shareholders should be offered the chance to subscribe for new shares – not just a few.
It took a long time before all – or, at least, most – shareholders were accorded equal treatment in the stock market. For years special voting and non-voting shares allowed small groups to exercise control. Interlocking shareholdings, giving quoted companies blocking stakes in each other, were also evident.
Two forerunners of Trinity Mirror, the newspaper group, indulged in such a conspiratorial attempt to retain independence. Whitbread was one blue chip to shelter behind a two-tier structure before opting for one vote, one share in the early 1990s. But a handful of companies still embrace uneven voting shares. One defence is that a buying investor must know he has picked a disadvantage share.
The habit of raising cash through placings to selected organisations and individuals is, I believe, a disservice to other shareholders and encroaches on the alleged policy that all should be treated equally. I realise that a placing is cheap and quick. But the cost, unless a company is strapped for cash, should be an irrelevance. And the speed element only comes into play if money is needed urgently.
Many companies attempt to avoid the obligation to use the rights process by putting forward special resolutions at yearly meetings. With City institutions happy to oblige there is rarely any objection. Of course, it is foolish to pretend that small shareholders will, in every respect, be treated the same as big players. In almost every walk of life the top echelon gets a better deal but, in such regulated areas as cash calls, the small shareholder should enjoy the same respect as a major institution. The authorities should ensure they do.
Marston's is a candidate for the no pain, no gain portfolio. I have been pondering over the brewer and pub owner for some time. When the shares approached 200p, I feared I had missed the boat. But the price, as I write, is around 112p. I could be tempted.
The rights shares are heavily discounted – 11 for ten at 59p. Unlike others, Marston's is not giving high priority to reducing its debt pile; it wants the cash mainly for expansion. Clearly it believes its borrowings are tolerable.
There is much concern these days about pub closures, but Marston's has done a little to redress the balance by opening 50 in the past five years; it is looking to build up to 25 a year with the rights cash.
The group talks about its "F" plan with new pubs focussed on food, families, females and 40/50-somethings.
One casualty of the call is likely to be Marston's standing as a high-income stock. It has been quite lavish with dividend payments, even increasing last year's distribution when a cut was expected. And it recently held its interim payment. Still, there is no point paying rights cash out as dividends.
Will your credit card rewards be scrapped following new EU rules on charges?
Buyers beware of new-build home headaches
Bargain Hunter: First Utility's Cosy deal lets you heat your home from anywhere
What would happen if you put a statistician in a casino with £1m?
10 tips for taking out a personal loan
- 1 Migrant crisis: Greek soldier saved 20 people singlehandedly off Rhodes beach
- 2 Sofyen Belamouadden murder: The inside story of a crime that horrified Britain
- 3 UK weather: Britain braced for snow as arctic air mass moves in
- 4 Aaron and Melissa Klein: Oregon anti-gay bakers ordered to pay $135,000 after refusing to make cake for same-sex wedding
- 5 'Isis' schoolgirls: Missing British teenager tweets picture of her Syrian takeaway
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband
The sickening truth about food banks that the Tories don't want you to know
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
General Election 2015: Britain would become a 'communist dictatorship' under Ed Miliband and Nicola Sturgeon, claims wife of Michael Gove
iJobs Money & Business
£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...
£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...
£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...
£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...
Day In a Page
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace