It might be the biggest cash call in European market history but RBS seems merely to have tweaked standard practise with the structure of its £12bn right issue.
The fund raising will be underwritten by Goldman Sachs, Merrill Lynch and UBS, who are also advising on the transaction, and it will also be deeply discounted. So far, so standard. The issue is underwritten to ensure that RBS gets its cash no matter what happens in turbulent markets, and the deep discount helps keep fees to a minimum – though the 40-plus per cent haircut is eye-catching.
But Goldman, Merrill and UBS will not underwrite the entire £12bn by themselves. In preparing the mammoth cash call, the banks will have been on a hunt to find other institutions, such as pension funds, insurers and hedge funds, to act as sub-underwriters and be prepared to take any unwanted shares.
But the size of the RBS capital raising made the pricing of such a service subject to debate.
Rumours flew round the London market on Tuesday that sub-underwriters were being offered 100 basis points to sign up to support the issue. Taking 1 per cent merely to act as a backstop may look rich, but traditionally, the helpful types in these equity sales have got more for their troubles.
In fact, RBS’ banks went out with a range of 80 to 100 basis points, but such was the demand from hedge funds and the like that the fee looks likely to be set at the lower end of that range.
Bankers told FT Alphaville that this sounded reasonable. The deal is huge and the RBS rights issue will take two months to complete. Normally a issue runs for five weeks, but the RBS fund raising will take longer because the prospectus has yet to be approved by the UKLA.
On the other hand, with a 46 per cent discount the willing hordes of sub-underwriters may have thought signing up as a backstop for a chunk of cheap RBS stock, even at 80bp, looked like money for nothing.