Kleinwort slashes underwriting charges by 30%

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The Independent Online
City moves to cut the cost of raising capital gathered pace yesterday when Kleinwort Benson raised pounds 120m for Bodycote International in a rights issue where the underwriting commissions were slashed by almost 30 per cent, saving more than pounds 700,000.

The announcement followed hard on the heels of two rights issues managed by Schroders which achieved commission savings of 8 and 11 per cent.

All three moves are part of a campaign to introduce competition into charges to persuade the Office of Fair Trading not to refer the City to the Monopolies and Mergers Commission. Until recently, charges have been fixed, leading to accusations of a cartel.

Institutions welcomed the Kleinwort announcement, which involved the auction of 53 per cent of the sub-underwriting compared with 36 per cent in Schroders' most recent issue, for More Group, and 28 per cent for the first auction, for Stakis last week.

But there was criticism of BZW for not cutting commissions in a pounds 38m capital-raising for Mayflower Corporation, the vehicle body manufacturers, also announced yesterday. BZW organised a placing and open offer which also involves underwriting commissions.

The shares went to an immediate premium, which one institution claimed was an indication that the underwriting risks were low enough to justify a cut in commission. The shares closed 8p up at 143p.

Bodycote also rose 31.5p to a new high of 742.5p, but as a result of the auction, sub-underwriters were paid just over 1 per cent compared with 1.5 per cent on a fixed commission scale. Kleinwort reduced its own commission pro rata, bringing the total saving to pounds 701,000 or 29.3 per cent of the equivalent fixed commission cost.

Mayflower's total underwriting commissions were 2 per cent. Khalid Rahim, a managing director of BZW, said the issue was smaller than Bodycote and very finely priced. He said BZW had been instrumental in developing the techniques tested in the Stakis rights issue, and the investment bank had a number of ideas that would benefit companies raising capital in the future.

Mayflower is raising the money as part of the funding for the $137m acquisition of SCSM Holdings, a supplier of metal pressings and body sub-assembles to the US automotive industry.

Bodycote International, the metal technology to insurance group, announced the pounds 57.5m acquisition of Brukens Thermotreat, a Swedish heat treatment company, accompanied by the pounds 120m rights issue.

The deal, which is expected to be earnings-enhancing before any savings from cost cuts, will give the British group a leading position in European markets.