Engineering company shows the way with no-underwriters rights issue

The practice of charging companies fixed fees to raise money in the City looks on the way out after an engineering company yesterday launched a rights issue dispensing with underwriting fees altogether.

The move comes just two weeks after John Bridgeman, Director General of the Office of Fair Trading (OFT), referred the issue of underwriting services to the Monopolies and Mergers Commission, on the grounds that the system is anti-competitive.

Heat treatment specialist Bodycote will raise pounds 99.3 million in a one- for-four rights issue priced at 500p a share - a 47.5 per cent discount to the prevailing market price - to help pay for its pounds 60.7m acquisition of French group HIT. Pricing the issue at such a large discount removes the need for underwriting, where institutional shareholders guarantee to buy shares at the issue price even if the company's share price falls below it.

As a result Bodycote, which was advised by Dresdner Kleinwort Benson, does not have to pay the standard underwriting fee of 2 per cent of the amount raised. "It was a case of saving pounds 2m, which is a very attractive proposition for a company like ours," said managing director John Chesworth.

The move was generally welcomed in the City. "It's throwing down a gauntlet to the traditional system," said one institutional investor. "It was bound to happen sooner or later," another investment banker said.

The issue is believed to be the first in recent years where a financially sound company dispenses with underwriting fees. Previously, investment banks had sought to cut fees by putting part of the underwriting out to tender.

John Rogers, director of investment services at the National Association of Pension Funds, said: "It shows that there is flexibility in the London underwriting market." Most observers said there was no reason why other companies should not adopt a similar approach.

The OFT was also positive. "This is just the sort of thing the Director General was looking for," said a spokesman.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test