View from City Road: Cash calls galore subdue the stock market

Share prices of the leading 100 companies are lower now than they were at the start of the year. At first sight this looks odd, given the rate at which green shoots are sprouting.

One of the reasons for the market's dull performance - the FT-SE 100 index closed yesterday 24 points lower than it opened on the first day of trading in 1993 - is the extent to which shareholders have been asked to dig deep into their pockets to fund cash calls by companies.

While the FT All Share has performed better than the FT-SE 100, it is only slightly higher than it was three months ago.

So far this year companies have raised pounds 2.8bn in rights issues and large shareholders, at least, have had to sell shares they already owned to fund them. Pension funds started the year with just 3 per cent of their assets in cash, leaving them with little flexibility.

Their cash flow was until recently forecast to be pounds 38bn in 1993. But it is now expected to be only pounds 30bn, following revisions to Central Statistical Office numbers. This means the institutions - pension funds and life insurance companies - are going to be hard-pressed to buy anything like as many gilts as the Government would like, let alone fund companies' cash requirements.

The 40 or so rights issues this year have varied widely. The strongest companies - such as Kingfisher, Bowater and Commercial Union - made their requests for cash early in the year, safe in the knowledge that they had good stories to tell, with acquisitions and expansion plans, and they would attract support.

Other, weaker companies saw how well these cash calls were received and took their chance, egged on by financial advisers. WPP used the opportunity to replace some of its borrowings with equity, and got away with it, thanks in part to the backing of Samuel Montagu and Fleming Investment Management.

A third group has emerged this week. Yesterday, Hunting asked shareholders for pounds 36.8m to help it fund a defence contract which it has already signed. On Tuesday, Millwall asked shareholders for money to help pay for a stadium it has already started building.

Shareholders will soon become fed up with these requests. Both projects would normally be financed by bank borrowings, and should have been financed in advance. Both companies appear to need their shareholders more than their shareholders need them.

Private shareholders would be better off keeping their money for new issues, which are still tending to start trading above launch prices, rather than for unattractive cash calls.