Trafalgar House leads the runners for rights issues

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The Independent Online
SPECULATION is mounting that Trafalgar House, the engineering and construction group, is about to launch a pounds 150m rights issue to help restore its balance sheet to health and secure its long-term future.

There is also intense speculation in the stock market about an additional rights issue - possibly more than pounds 1bn - from a leading British company at some stage this week.

With the stock market close to its all-time high, financial advisers have been telling their clients to get their rights issues away early or risk being crowded out in a queue of companies wanting to raise new equity capital.

So far this year, there have been three rights issues above pounds 100m: Asda, Burton and Wessex Water. But according to merchant bankers and stockbrokers, many more are planned over the weeks and months ahead.

Any rights issue from Trafalgar House could prove controversial, as it is still less than two years since the company last raised money from its shareholders. Since then profits and the company's share price have collapsed, and pressure for management change has led to the departure of Sir Nigel Broackes and Sir Eric Parker, as chairman and chief executive. However, leading institutional shareholders suggest that a rights issue is possible. The group's new 20 per cent shareholder, Hongkong Land, is also believed to be supportive.

There are rumours that Kingfisher, owners of Woolworths, will launch a rights issue if its negotiations to buy a stake in Darty, the French electrical goods retailer, succeed. Speculation of a giant pounds 3.5bn rights issue from Glaxo, the pharmaceuticals group, also persists although with the company's share price under pressure, market operators are increasingly sceptical.

Trafalgar ran into severe difficulties after its acquisition of Davy Corporation, the engineering contractor. This company had been brought low by a disastrous contract to convert the Emerald North Sea rig. Trafalgar is also being forced to make other write-offs.

There is also strong speculation that Barclays and National Westminster may announce share issues in the next few weeks, when they unveil their full- year results for 1992.

Both banks have suffered heavily in the recession from a deteriorating loan portfolio and the need to make large bad debt provisions. Barclays is expected to make provisions of more than pounds 2bn while NatWest's will be around pounds 1.8bn. This has pushed their ratio of core capital down toward 5 per cent of assets, which is regarded as low for leading British banks.

'They definitely need more equity,' said Martin Hughes, banking analyst at Credit Lyonnais Laing. 'If we really are coming out the recession, companies will need to borrow. To meet that demand, the big clearers will have to have more capital.'

NatWest is believed to be considering an issue of around pounds 370m of convertible bonds, which would count as Tier Two capital until converted into shares about three years later, when it would count as Tier One capital. Several banks are understood to have rejected the idea of issuing convertible notes, on the grounds that they were too complex to be readily acceptable to investors.

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