Cash-strapped companies to ask shareholders for more funding
Builders, retailers and banks target shareholders
Monday 09 February 2009
Dozens of British companies are set to launch new rights issues over the coming weeks in an attempt to pay down their debts and repair their cash-starved balance sheets.
Hammerson, the UK property company which was behind the recent redevelopment of Birmingham's Bullring shopping centre, is expected to kick off the current round of fund-raising today, unveiling plans to tap its shareholders for around £600m. British Land, another property group, is also considering launching a rights issue of around £500m – and may make an announcement when it publishes its third-quarter results on Thursday.
Property companies have run into acute funding difficulties over the last few months, as the value of offices, shops and warehouses has plummeted. A new report published by the Royal Institution of Chartered Surveyors today reveals that more than 70 per cent of surveyors saw a fall in demand for commercial property in the final quarter of last year, with the retail sector being the worst hit.
Hammerson's rights issue is to be underwritten by Citigroup and Deutsche Bank, which are believed to have already begun sounding investors out about the fund-raising initiative.
It is thought that a number of quoted property companies will be forced to raise new capital over the coming months. According to a recent research note issued by Morgan Stanley, Brixton, Liberty International and Slough Estates will all need to raise new funds if they are to be able to sustain a further 10 per cent fall in commercial property values. The note also suggests that British Land would need to raise more than £800m to protect itself against such a fall in values – although it is not believed the company is considering a rights issue of this size at the moment. Workspace, another commercial group, raised close to £900m last month, while the homebuilder Barratt Developments is believed to be currently considering a rights issue as well.
Oliver Gilmartin, the senior economist at Rics, said it was likely that there would be a further weakening in the market over the coming months. "Concerns as to the depth and duration of the current downturn are being reflected in the commercial property market where investment has been dramatically scaled back," he said. "New Government packages such as loan guarantee schemes and the separation out of toxic assets are welcome developments for both corporate occupiers and investors into commercial property, although they will not prevent a further near-term weakening in rental prospects on rising space."
He added, however, that the collapse in sterling could help spark interest from investors in continental Europe, which may help the market begin a recovery in the second half of the year.
Equity fund-raisings will not be limited to the property sector over the coming months, however. Businesses across all sectors are suffering from the shortage of credit, and are being left with no option but to ask shareholders to stump up extra cash. DSG International, which owns Currys Digital and PC World, is believed to be considering a rights issue of several hundred million pounds. Banking giant HSBC, private equity group 3i, plumbing company Wolseley, mining group Rio Tinto and food business Dairy Crest are among a long list of other businesses believed to be weighing up plans to launch rights issues in coming months.
As well as Workspace's £872m fund-raising, both Xstrata, the mining group, and Cookson, the ceramics to precious metals business, launched rights issues in January, looking to raise $5.9bn (£4bn) and £240m respectively.
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