Outlook: Still no rights issue from tongue-tied Invensys. Why the delay?

Another rail fiasco; Less is more
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Rumours of a rights issue would normally poleaxe a company's share price. The curiosity of the Invensys spin machine this past couple of weeks, which is saying expect a £500m blockbuster any day soon, is that it has had precisely the reverse effect, significantly boosting the share price and, therefore, the amount that can be raised for any given level of dilution.

Regulators suspect the market is being manipulated, but if it is, it is hard to see who of any relevance is damaged by it. Obviously there is some kind of a principle involved if investors are selectively being told there's a rights issue in the offering. Yet the higher the shares go, the better it is for existing Invensys investors, for that makes the dilution less severe. Admittedly, short sellers get squeezed, but who cares about them?

Plainly someone does, for the listing authority was sufficiently exercised by it all yesterday to force Invensys into a "clarifying statement". As is usual in such matters, the statement clarified precisely nothing. Invensys said that it is continuing to explore disposals and a number of alternative financing routes. That doesn't sound good. If Invensys could credibly launch a rights issue to ease its financial difficulties, it would presumably have done so by now.

The curiosity of a rising share price on rumours of a heavily dilutive rights issue is caused by the fact that Invensys desperately needs the money. Without it, there will be a much worse dilution to come further down the line, if not a total wipeout. In a letter to shareholders last November, the company admitted that without disposals it would run out of money in June, when a $1.5bn revolving credit facility expires. After such candour, Rick Haythornthwaite will be lucky to avoid a self-fulfiling prophecy for, knowing his desperation, potential buyers have been grinding him into the ground ever since.

The choice appears stark but scarcely a difficult one. Either he must cut himself some slack by raising more equity, or he must sell assets at fire-sale prices. The longer he dithers, the more worried investors become. Perhaps things are now so serious at the once mighty engineering goliath that a rights issue would be all but impossible anyway. Mr Haythornthwaite must say something soon, or his chance of tapping investors for more money will be gone.

Another rail fiasco

If it was a bad commute into work this morning, then reading the latest tome from the National Audit Office is unlikely to improve your humour. The title on the front page reads "Improving passenger rail services through new trains" but once inside it is downhill all the way.

Since privatisation, the railways have ordered £4.2bn worth of new all-singing, all-dancing, air-conditioned, wheelchair-friendly rolling stock, yet there is precious little to show for it. Half the 4,500 carriages have yet to arrive, hundreds more are in the sidings waiting for the power supply to be upgraded and those that have reached the track have a distressing habit of breaking down.

No prizes for guessing who is picking up the tab. There was a nice fat subsidy of £760m to persuade the train operators to buy new rolling stock in the first place, and the bill for delays will also end up at the door of the taxpayer.

Who's to blame? The buck stops with the chairman of the Strategic Rail Authority, Richard Bowker, who is rarely referred to these days without the adjective "beleaguered". It was his job to make sure the introduction of this particular new train set went smoothly. Of course, the die was cast well before the luckless Mr Bowker arrived, when his predecessors decided to banish the old slam-door rolling stock from the network by December 2004 without the faintest idea of the practicalities of their instruction. As a result, the train now arriving at platform 3 is not a Desiro or a Pendolino but still some clapped out Mk One born of a bygone age.

The report blames everyone from the manufacturers who delivered duff rolling stock, to the train operators who did not place their orders early enough, to Railtrack which did not cotton on that trains with air-conditioning, on-board computers and automatic doors tend to draw more juice from the network.

The root cause of the calamity lies in the dearth of investment, which preceded privatisation of the railways. The decision then to break them up into a hundred different pieces guaranteed that the subsequent rolling stock procurement programme would be a disaster from day one. Most commuters would settle, first and foremost, for trains that run on time. These days travelling in a modicum of comfort is counted as an added bonus. Unfortunately, they are getting neither.

Less is more

Less is more was the title of a speech the other night by Frits Bolkestein, European Commissioner with responsibility for taxation and the internal market, to a City dinner organised by the European Liberal Democrat City Forum. Gordon Brown might want to take a look at it, for perhaps oddly, it conforms almost exactly with his own view of what the European Union should be about.

I say oddly because since deciding that Britain had failed the five euro tests, the Chancellor seems to have aligned himself closely with the core beliefs of the British eurosceptic movement. Yet Mr Bolkestein, a Dutch businessman and politician by background, is plainly not a eurosceptic. He's also had a number of hot tempered run-ins with Mr Brown over supposed attempts to harmonise tax rates across Europe. His views are so eminently sensible that they bear some repeating.

In point of fact, Mr Bolkestein is as opposed to harmonised rates of taxation as Mr Brown, who none the less seems to imagine a conspiracy to introduce them under virtually every unturned stone. The theme of Mr Bolkestein's speech was that the EU's failure to agree a Constitutional Treaty demonstrated once and for all that "the EU is a union of sovereign states, although with some federal characteristics, and handing over power is not something sovereign states are fond of".

As for a two-speed Europe, or enhanced cooperation as it is these days more politely referred to, he's against it. Recently published figures show that the biggest offenders in terms of failure to implement the existing directives of the internal market are France Germany, Belgium and Italy, while the best are Denmark, Spain, Finland and the UK. I cannot put it any better than Mr Bolkestein, so I'll let him speak for himself: "Enhanced co-operation in some areas is not a bad thing, but the self-appointed vanguard should begin at home by implementing existing community legislation."

Mr Bolkestein wants Europe to focus on the things where it can add value, and leave all the rest to national governments. What is the point, he asks, of recent moves to have goods labelled as "made in the EU" rather than made in the UK or made in Italy? It wouldn't enhance competitiveness one jot nor would it help customs officers fight counterfeiting. Furthermore, the idea is plainly unpopular and incites precisely the sort of anti-European feelings that the EU seeks to avoid. The union should therefore only act where there are obvious obstructions to intra-community trade in goods and services, where there are clear cut economies of scale to be had or there are cross-boundary issues to be addressed.

Enlargement, he concludes, holds dangers; it could make Europe fat and slow. So to keep the Brussels policy machine lean and fit, enlargement needs contraction at the same time: "We should learn how to set limits."

If all this sound like a lone wolf crying in the wilderness, it's not. In fact, it is the way Europe is heading. The key difference between his own approach and the British one, Mr Bolkestein observes, borrowing from President Lyndon Johnson's famous remark, is that he's inside the tent pissing out, whereas Britain all too often appears to be outside attempting to piss in.