Wednesday, as FT Alphaville warned, has kicked off with a conga line of UK companies launching cash calls.
Barratt Developments, Yell, Redrow and Liberty are together set to tap the City of London ATM for just under ₤1.5bn.
A big number, yes, but in the context of this year, nothing shocking.
We are at the start of a wider period of re-equitisation. Balance sheets, both corporate and personal, are over leveraged. Fresh equity, it is hoped, will wash away some of the corporate sins of the past decade.
But in the short term, questions inevitably will be raised over how much of this new paper investors can manage to soak up before they drown.
Thus far, UK institutions appear more than willing to back cash calls, and many hedge funds are desperate for their allocations of recent deals. The craving of buy-side investors for sub-underwriting fees also helps to grease the wheels.
More importantly, as Arbuthnot analysts recently noted, rights issues have outperfomed the market since the year began (even if this outperformance has markedly slowed in the second half of the year).
The 45 capital raisings examined by Arbuthnot this year have outperformed the FTSE All Share index by 5 per cent after one month, and by 9 per cent after three.
In the often myopic world of fund management, those who have missed the current rally are, in professional terms, walking the plank. Many of them also have large piles of cash still waiting to be put to use.
They need alpha, and they need it now. And if cash calls continue to provide this, then they will continue to stump up their clients’ money.
Related links:
Barratt and Redrow set for £850m cash call – FT
The City of London ATM – FT Alphaville