Analysis: Investors face dilemma as capital increases fill IPO void

Ayvens SA

06/12/2022 07:00

By Pablo Mayo Cerqueiro and Oliver Hirt
       Dec 6 (Reuters) - Investors in European companies are
being asked to plough money into a series of capital hikes as
cash-hungry companies, including Swiss lender Credit Suisse
 CSGN.S , look to equity markets to repair their balance sheets
and fund costly turnarounds.
    Still, despite the opportunity to buy shares at a discount,
shareholders sometimes face a difficult choice between doubling
down on their bets on a company or accepting dilution and
seeking value elsewhere.
    "It is often easier for investors to put money into a rights
issue than in a company they are less familiar with," said Alex
Watkins, co-head of Equity Capital Markets (ECM) in Europe, the
Middle East and Africa (EMEA) at JPMorgan. 
    "This is a test as to whether shareholders want to support a
company they know well already," he said.
    In contrast with a drought of initial public offerings
(IPO), EMEA companies have raised an overall 33.3 billion euros 
($34.99 billion) through capital increases so far this year.
    While this is the lowest level in the last five years and
more than 50% lower than the 70 billion euros raised a year ago,
it is not far from pre-pandemic volumes in 2019.
    Credit Suisse and Societe Generale's car leasing unit ALD
Automotive  ALDA.PA  are the latest to brave rocky markets, as
they try to raise 4 billion Swiss francs and 1.2 billion euros,
respectively.
    The rush to secure cash from investors comes as European
companies are grappling with persistent inflation and the
fallout of the energy crisis, while banks such as scandal-hit
Credit Suisse and Italian lender Monte dei Paschi  BMPS.MI  are
cutting costs as part of their turnaround efforts.
    Meanwhile, fund managers' cash holdings stand at a near
21-year peak, according to poll data from Bank of America.
    After hovering close to the deal subscription price, shares
in Credit Suisse have bounced back after the bank reassured
markets that client outflows were being reversed, offering the
bank underwriters a sigh of relief.
    "It's understandable if some investors are reluctant to
invest in the capital increase," said Andreas Thomae, corporate
governance specialist at Deka Investment, which holds a small
stake in the Swiss bank. 
    "On the other hand, it's a very favorable transaction for
shareholders, which also prices in the risk of the restructuring
failing – otherwise, the price would be much higher," he added.
    Earlier in the autumn, minority shareholders took up only a
tenth of Monte Dei Paschi's 2.5 billion euro rights offer,
leaving a group of sub-underwriting investors to hoover up the
bulk of the paper not covered by the Italian state.
    In July, the banking syndicate for Italian energy services
group Saipem's  SPMI.MI  2-billion-euro cap hike was left with
roughly a third of the offer after investors shunned the cash
call.
    "We don't have a general position on rights issues. It's
case by case," said Marc Festa, a portfolio manager with Alken
Asset Management, which has been invested in ALD Automotive
since Societe Generale listed the car leasing firm in 2017.
    The London investment boutique said it planned to subscribe
to ALD Automotive's cash call, intended to fund a 4.9 billion
euro tie-up with TDR Capital-backed LeasePlan.
    "We think the acquisition of LeasePlan is a good strategic
move to consolidate the car rental market in Europe," Festa
said.
    William Higgons, president of Indépendance et Expansion AM,
also said his fund would be partaking in the rights offer,
despite the possibility of LeasePlan shareholders dumping shares
after the lock-up period weighing on the stock.
    "The return on equity of ALD is rather high, so it's a good
business to be in," Higgons said, adding that car ownership is
not as popular anymore. "I'm a long-term investor, so I think
one day I'll be right."
    Both Festa and Higgons were skeptical that next year would
see a deluge of capital-raising activity, arguing that companies
are generally well funded despite the economic uncertainty.
    "Right issue volumes have been relatively low this year, and
most of the companies that issued new shares were already in
need of cash before recent volatility," Watkins said. 
    "However, the market could see more firms turn to
shareholders for funding given the rising cost of debt and
changing outlook," he added.
    ($1 = 0.9517 euros)
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
EMEA follow-on stock issuance    https://tmsnrt.rs/3h5vAOj
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Pablo Mayo Cerqueiro and Oliver Hirt; Editing by
Bernadette Baum)
 ((Pablo.MayoCerqueiro@thomsonreuters.com;))