Lord Cairns, chief executive, said: 'We've been expanding the business in a number of areas recently, and we always like to have a certain amount of cash in the kitty to follow up any opportunities which might come our way.'
He stressed that the subordinated convertible bond issue, increased from an original pounds 80m following strong demand in the market, would be used to fund operations in several areas over a number of years.
But it is understood that Warburg is keen to catch up with its bigger American rivals in the lucrative derivatives market. It recently bought the Chicago-based futures and options trader KC-CO to help its cause.
Warburg's shares yesterday fell from 729p to 715p at one point but eased back up to 719p. Analysts were intrigued by the possibility that Warburg might be short of capital, but admitted that the price fall was as much to do with a general weakening in the merchant banking sector over the past few days as anything else.
Warburg had said at the time of its results in May that it had no pressing need for new equity. At 31 March it had total capital resources of pounds 1.2bn including shareholders' funds of pounds 889m. The bank does not publish its risk-asset ratio, the internationally accepted measure of balance sheet strength.
The bonds were issued at par yesterday and carry a semi-annual coupon of 61 2 per cent, maturing on 4 August 2008. Dealers said the bonds were quickly bid up to 1021 2 before profit-taking saw them fall back to 102.
The bonds convert into Warburg shares at 854p giving a premium of about 18 per cent. Dealers said the issue was priced very cheaply and was snapped up as a result.Reuse content