Schroders cuts Berkeley issue costs in bid to fend off MMC

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Schroders cut the cost of a pounds 123m rights issue for housebuilder Berkeley yesterday to around half the 2 per cent of proceeds that companies have traditionally paid in the past for raising money on the stock market. The deal marked the latest attempt by the City to fend off a threatened referral to the Monopolies and Mergers Commission of the widely criticised system of underwriting rights issues.

The Office of Fair Trading has warned several times it is unhappy with the commissions charged in rights issues. In what is widely viewed as a complex monopoly, the City stands accused of raising the cost of capital for British companies, making them less competitive than their international rivals.

A two-for-nine cash call at 560p, the issue was intended to raise funds so that Berkeley could continue cashing in on the housing market boom in London and the South-east where it is building large and capital- hungry developments.

Tony Pidgeley, managing director of Berkeley, said the cash-raising exercise reflected the continuing buoyancy of the housing market, which has led to record sales and reservations in four out of the past five months. He forecast profits for the year to April of not less than pounds 90m, a 20 per cent improvement on the pounds 75m reported last year.

It was not Berkeley that attracted the most attention in the City yesterday, however, but Schroders, the merchant bank which has carved out a niche for dreaming up innovative rights issue packages designed to satisfy the competing interests of companies, their shareholders and the competition authorities.

Following a rights issue a year ago for hotelier Stakis, in which Schroders introduced the idea of inviting tenders as a way of reducing sub-underwriting commissions, the Berkeley cash call broke new ground by selling the rights issue shares at a big discount as a way of further reducing the cost of commission.

By offering shares at 26 per cent less than the 760p at which they traded before yesterday's announcement, Schroders reduced the risk that the rights issue would not be taken up by investors and so cut the amount of commission that institutions demanded for taking the risk of being landed with overpriced stock.

- Tom Stevenson

Outlook, page 25

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