Published: April 7 2009 15:15 | Last updated: April 7 2009 20:00
The economy is shot, public finances are on the rocks and many banks are state controlled. Yet UK plc is adroitly restructuring itself. Indebted companies have raised about £20bn ($29.5bn) of equity this year. The banks have taken most, with HSBC alone swallowing £12.5bn, but the miners, construction and property companies have hardly held back. What is surprising, though, is how little equity has been raised elsewhere: according to Dealogic, just half the UK amount in Europe and the US each.
National idiosyncrasies may explain some of this apparent sluggishness. German companies have raised almost no equity this year – perhaps believing, as Berlin long did, that the crisis might pass. But US companies have been almost as slow. Another possibility is the process itself. Yet, while the British rights issue system has been streamlined to 16 days, US companies can raise capital in a heartbeat through book-building, and Europe is often not much slower.
Instead, the reason for UK plc’s speed may be its shareholders. European companies are often controlled by families – which may lack the funds for cash calls. US companies can have large retail bases, invested via mutual finds, which face similar constraints. UK institutional investors, by contrast, have played an active role. They have wanted strong balance sheets among the companies they co-own, were prepared to pay for it, and even act as sub-underwriters to help an issue’s success.
Steep discounts have protected sub-underwriters from the risk of large rumps of unplaced shares. Minorities, meanwhile, can avoid dilution by exercising pre-emption rights that allow participation on equal terms. The result is a relatively efficient and equitable process – and, probably, a lower cost of capital.
So hats off, for once, to institutional shareholders, if not to the debt-binged companies they saved. Other companies, in other countries, may regret not moving as fast.
BACKGROUND NEWS
UK companies have raised some $29bn of fresh capital through rights and convertibles issues this year, compared with $14bn in Europe and $16bn in the US. Asia has, meanwhile, raised $24bn, according to Dealogic.
Citigroup estimates that European companies, including those in the UK, will need to raise as much as $400bn of equity in 2009 and 2010
