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Cover Yourself

Non-financial companies wanting to tap equity capital markets may see more favourable investor reactions.
Tim Burke, CFO Europe Magazine
March 2, 2009

As you'd expect from the company behind Durex condoms, SSL International takes safety seriously — and that goes for its finances too. With acquisitions in its sights and an ambitious growth strategy, the directors of the London-based company decided not to put pressure on its existing £220m (€245m) credit line, but to raise £87m in a share placing announced in January. Investors seemed to approve the move — the placing was three times oversubscribed within an hour of opening.

As companies clamour for cash, many are turning to the equity markets for fresh funds. Analysts at Goldman Sachs predict that non-financial companies will raise between €100 billion and €300 billion globally this year through new share placements. Not all, or even most, will do so for such positive reasons as SSL.

Last month, Hammerson, a UK property company, announced that it would raise £584m through a deeply discounted rights issue. If the value of the company's property portfolio continued to decline, the board said, Hammerson could breach its banking covenants. Debt renegotiations were "difficult to achieve," it added, so a rights issue was the best option.

Regardless of the reasoning, it seems that investors will support companies seen to be improving their balance sheet. Indeed, Hammerson's share price rose on the day it announced the rights issue, despite the gloomy rationale for the cash call. While Goldman Sachs says market uncertainty may make investors "more nervous about absorbing the extra equity supply," analysts at Morgan Stanley suggest they already anticipate capital raisings and will therefore show a "more muted" reaction than in 2008 when "re-equitisation efforts were often met with very significant share price weakness."

Despite investors' positive reactions to recent rights issues, it goes without saying that CFOs will tap the equity markets out of choice rather than necessity. SSL finance chief Mark Moran jokingly describes the company's existing credit line as so "keenly priced" — 50 basis points over Libor — that "our bankers at the moment would rather we didn't have [it]."

The facility is in place until January 2012 and has plenty of headroom, he adds, but "with the world going into a much more uncertain position, we felt as a board that we'd rather keep some flexibility in our debt facility and not necessarily renegotiate that if we didn't have to." It is indeed a nice option to have. Many CFOs are not so fortunate.

New equity raisings


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