Sources of finance: PLCs turn to their shareholders
Monday, May 11, 2009
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What do large, quoted companies do when they encounter problems raising bank finance and when they realise that their balance sheets are over-geared? Have a rights issue...
Some fascinating data today in The Times describes how many quoted companies have turned to a rights issue in order to raise new equity finance.
The total to-date is over £18 billion for 2009. You could easily imagine this doubling by the end of the year as companies look to re-balance their finances away from reliance on debt. The recent rebound in share prices has also made rights issues more attractive - though the share price on offer in recent rights issues is still at a substantial discount to the prevailing market price.
The case of 3i raises some additional points of relevance to A2 students. 3i - itself a venture capitalist - needs to raise equity finance to support its existing investment portfolio. Not only are 3i’s investees (the businesses in whom 3i has taken a stake) in need of extra finance. So too is the venture capitalist. Tough times indeed. However, a boom in rights issues can often be a sign of increasing confidence amongst the corporate and investment community.
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