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Laggards join cashcall rush

Source: Reuters - Fri 25th Sep 2009

A mixed bag of British firms asked investors for $2.7 billion (1.7 billion pounds) of fresh cash on Wednesday, with one returning for seconds to fund growth plans and others tapping a buoyant market for the first time to prop up their finances.

The latest wave of cashcalls highlighted a divide between companies which, having already moved to fix their balance sheets, are now ready to exploit the downturn, and latecomers who have yet to recover from it.

Britain's largest shopping mall owner Liberty International turned to shareholders for the second time in five months, pledging to spend the 280 million pounds it raised on developing and acquiring sites.

Housebuilder Barratt Developments, which racked up a pretax loss of well over half a billion pounds, is also tapping investors, but will end up using most of the 720.5 million pounds it hopes for to pay down debt rather than fund growth.

Barratt had rejected talk of a rights issue back in May, at a time when a host of banks, property firms and miners were seeking emergency cash injections from shareholders in a bid to restore balance sheets battered by the global financial crisis.

They included Liberty, which raised 592 million pounds via a share sale in April to repay debt and reassure its lenders.

"Whilst a rights issue will definitely put (Barratt) on a more stable footing and give (it) the confidence to go out and purchase land, at this stage we would continue to prefer ... companies with cash-positive balance sheets and better financial health" analysts at Panmure Gordon wrote.

Bankers say the rush to raise equity is starting to shift away from emergency cash calls as investors grow weary of pumping money into companies to keep them ticking over. 

Instead they expect a desire for better returns to boost appetite for either initial public offerings or rights issues that give companies the leeway to fund aggressive growth and snap up bargains while asset values are low.


Wednesday's cash calls from five British firms seeking to raise over 1.6 billion pounds between them also reflects the fact that companies may be worried they will miss the boat if a recent stock market rally fades.

"Whilst the markets may be buoyant, boardroom directors will not forget in a hurry what it was like only six months ago. We will see a continued shift towards prudence in... capital structure(s)" said Ben Canning, head of BNP Paribas' UK equity capital markets.

The FTSE-100 share index has risen nearly 50 percent from a six-year trough plumbed in March, encouraging companies to raise cash via new equity rather than by borrowing, which remains expensive.

Among other defensive rights issues unveiled on Wednesday, debt-laden yellow pages publisher Yell Group said it planned to raise at least 500 million pounds by selling new shares, using the proceeds to repay creditors.

Yell had said as far back as May that it was looking at all options for refinancing but has to deal with hundreds of lenders owed billions of pounds between them.

Analysts at Barclays Wealth Research cautioned that both Yell and Barratt were likely to remain risky bets even after their rights issues.

"We think that Barratt's exposure to flats and urban areas puts it at a disadvantage to its peers and we believe it to be one of the riskiest companies within the sector" they wrote, adding that they would avoid Yell stock. 

Also in the property sector, Redrow said it would use a rights issue to raise 156 million pounds.

The announcement from Barratt's smaller rival coincided with news of a small 15 million pound acquisition, but that was dwarfed by an agreement to reduce its debt facilities to 250 million pounds from 425 million pounds.

In the mining sector, Hambledon announced a 2.8 million pound share issue to develop a mine in East Kazakhstan.

At 1306 GMT, shares in Liberty were down 9.2 percent at 512 pence, just above the 500 pence level at which the new shares were placed with investors. Barratt was up 0.4 percent at 269.5 pence and Redrow fell 1.9 percent to 229.1 pence.

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