Peter Sands smoothly introduced Standard Chartered’s rights issue – complete with first refusal for existing shareholders – on the same day his counterparts at Barclays were forced to defend their bastard capital-raising against the howls of wounded investors.
It was a coincidence, of course. But it could have been calculated to underline the point Britain’s biggest institutional investors made last week: that companies should think very carefully before trampling over sacred pre-emption rights even when, as at Barclays, “size, speed and certainty” are priorities.
That point will be reinforced if the UK Treasury’s taskforce on capital-raising, due to report soon, urges no change to the stately British rights issue. But while this form of capital-raising should remain the bedrock of the system, not even big investors believe it should survive unreformed.
The rights issue is democratic. It’s cost-effective. Unlike other capital-raisings that provide “clawback” for investors – such as Barclays’ innovative June placing and open offer – it allows those that do not wish to subscribe to sell their rights.
But as designed for a pre-internet age, the rights issue has proved unsuitable for banks in extreme peril, from HBOS (slow off the mark, slaughtered by the markets, forced into a merger) to Bradford & Bingley (two false starts and an ignominious nationalisation, despite institutional support).
StanChart looks a model. It was quick off the blocks with pre-authorisation and a detailed press release. Its prospectus is due out on Wednesday. Mr Sands and his team should be out of the danger zone by December 17, whereas HBOS hung itself out to dry for nearly three months. The taskforce has discussed requiring all companies to keep a framework prospectus on the shelf, ready to go. That may be unrealistic. But if the mandatory subscription period were cut from three weeks to two (or even less for institutions), that would help.
Of course, StanChart was able to do its issue from a position of relative strength. Even Barclays had to decide to go it alone over a weekend when many of its competitors were opting for state subsidies. Most banks would be hard-pressed to launch any rights issue now. But it’s not as though US placings, for all their speed and certainty, have saved their American counterparts. As it turns out, it wasn’t the good old British rights issue that was broken – it was the banks themselves.