Rights issues are in the news again. Bradford and Bingley has turned Clive Cowdery, its would-be investor, away with a flea in his ear. HBOS’s share price seems to be fluctuating up and down and around its plannedÂ rights issue price leaving the fundraising in doubt one moment, and sure to go ahead the next; and now Britain’s biggest house builder, Taylor Wimpey, has joined the fundraising trail.
For Bradford and Bingley, it all seemed a tad odd. On the face of it Clive Cowdrey’s offer, via his vehicle Resolution, seems to win hands down over the plan B&B had hatched. Yet the bank wouldn’t even let him view its accounts.
The snag was really two-fold.Firstly it didn’t know, secondly it couldn’t dare.
It didn’t really know for sure that Resolution could put up the money it had outlined. Secondly, it was scared of losing TPG, the investor it had already found.Â You see, TPG’s offer is pretty firm, Resolution’s had a shadow of doubt. If it turned TPG away, and then Resolution didn’t come through, then the fear was TPG would not come back.And it appears this was a scenario it just couldn’t dare allow to happen. That the bank was scared to lose one deal, even though another deal seemed so much better, does appear to tell us something, however. It tells us about the nature of Bradford and Bingley’s balance sheet, and how much it needs the cash injection.
Meanwhile, HBOS is seeking to raise £4bn.Trouble is, the money was to be raised via a rights issue at £275p a share but since the bank revealed its plans for this issue, the share price has been fluctuating around the level of the rights issue.
The whole point of a rights issue, from an investor’s point of view, is that you are supposed to acquire shares quite cheaply, so on the face of it there is no point in taking part in the rights issue. But here is the odd thing. HBOS shareholders can sell their entitlement to take part in the rights issue on the open market. This is known as nil-paid rights.
Now, on the face of it, you would expect the price of nil-paid rights to be exactly the same as the difference between the actual HBOS share price and the rights issue price which is roughly zero. (Well, actually, you would expect the nil-paid rights to have a slight premium because these rights are free of stamp duty.)
But at close of play on Friday, the nil-paid rights were trading at around 15p. Far more than can be explained by the stamp-duty differential. So it seems the market for nil-paid rights thinks the market for ordinary shares is wrong that the HBOS share price has been driven too low by speculation, perhaps.
Finally, there’s Taylor Wimpey. It is knocking £660 million off the value of its land and property holdings, and raising £500 million.
Now, a year ago, when the company was formed with the merger of George Wimpey and Taylor Woodrow, its land holdings were valued at £6bn. So that means it has written off just over 10 per cent of these assets. If house prices fall by a total of 20 per cent or more, then presumably it will have to write off more from the value of these assets. Total bank lending to the company is in the region of £1.9bn.
© Investment & Business News 2013