European cash calls set to top $74 bln

By Kirstin Ridley and Raji Menon

LONDON (Reuters) - Institutional shareholders handed European companies $28 billion (18.5 billion pounds) after 27 emergency cash calls in April alone, the busiest month for rights issues in 15 years, and investor appetite remains keen -- for now.

Companies have announced plans to ask shareholders to stump up at least $30 billion more in shares this year, on top of the $44 billion already raised, to repair balance sheets battered by the global recession, according to Thomson Reuters data.

But with earnings expected to fall sharply, bank credit scarce and a challenging economic outlook, this could be just a fraction of the final tally.

Analysts and bankers expect European firms to raise around another 140 billion euros (125.7 billion) this year.

As global stockmarkets rebound from precipitous March lows, market sentiment improves and interest rates remain negligible, fund managers say investors are becoming less risk-adverse as they seek higher returns than cash deposits allow.

"The interesting thing with some of the issues coming now... is that they are hugely oversubscribed," says Richard Buxton, head of equities at Schroders, a fund manager with about $150 billion under management.

"(The issues) are at very steep discounts to current share prices... these are attractive investment opportunities."


Willie Watt, the chief executive of boutique fund manager Martin Currie, believes there is great scope for more capital to be allocated to equities. "There's cash pretty much everywhere in the system," he says.

"The problem would come if volumes don't increase, for example, if cash sits on the sidelines... We are seeing some new money coming into the markets from our clients and net flows are positive. But it feels like there is a gradualist approach of feeding money into markets cautiously."

Led firmly by the bruised financial sector in Britain, European companies have already tapped equity investors for a record $99 billion in 2008. But it is no free-for-all.

Banks, afraid of being landed with unwanted stock, are proving tough taskmasters when companies approach them to underwrite planned issues.

And experts warn that an expected slew of corporate bankruptcies this year might yet force banks themselves to go cap in hand to shareholders for more cash.

"We may yet not have seen the end of capital raising from the banks, depending on how serious writedowns are going to be in the next six to 12 months," says Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers.


Keen to talk up the market, some bulls are billing global stockmarkets, still some 40 percent below their peaks of November 2007, as the greatest investment opportunity since the 1929 Wall Street crash.

But even with sizeable discounts to already deflated share prices, experts warn companies might be competing with governments for shareholder cash.

Britain alone plans to dish up a record 220 billion pounds of government gilts this financial year as the country heads for a record budget deficit of 175 billion pounds, or 12.4 percent of GDP (gross domestic product).

"Especially with the amount of government issuance of gilts coming up, the danger is that there will come a time when we will get indigestion in terms of customer appetite for rights issues," Hunter says. "As time goes on, it could potentially get a little bit more difficult."

(Additional reporting by Daisy Ku; editing by Elaine Hardcastle)

Article Published: 13/05/2009