-- Neil Collins is a Reuters columnist. The views expressed are his own --
By Neil Collins
LONDON, June 18 (Reuters) - And still they come. Not all rights issues are equal, but the broad message they are transmitting is unmistakable: company boards are either unable or unwilling to sustain the levels of debt they have accumulated in recent years. Like the western consumer, they are paying it back.
Unlike the consumer, they can present the bill for escape to someone else, in the form of the shareholders, and in a form which is impossible for them to refuse. On Thursday GKN, an automotive and aerospace engineer, tapped its owners for 423 million pounds, or almost half its (somewhat depressed) market capitalisation on Wednesday night.
The terms are pretty eye-watering. Despite pricing the new shares at a 58 percent discount to the 119 pence previous close, the banks have skimmed a 4.7 percent fee for underwriting the six-for-five issue. As is rapidly becoming the norm, their risk seems far smaller than their reward. The new shares will raise 50 pence each, and while the old ones dipped on the news, they recovered to end barely changed.
The arithmetic of the day's other issue, from Marston's -- Wolverhampton & Dudley Breweries as was -- is pretty similar. Its new shares are also 58 percent cheaper than the last price of the old, but at least there is a dividend of sorts, even if it is "rebased", as the current euphemism has it.
It would take a market collapse that made last autumn's look modest for either of these issues to be left with the underwriters. Unlike the desperate fund-raising from Punch Taverns earlier in the week, neither GKN nor Marston's is facing a bond repayment it can't meet. GKN wants less debt, while Marston's wants to build new pubs.
So far this year, the total raised in rights issues and placings is almost 4 percent of the value of the UK stock market. It seems eminently sensible to replace debt with genuine risk capital, but the prime beneficiaries are those banks (and bankers) who not long ago were urging companies to make their balance sheets more "efficient" by borrowing to pay capital back to shareholders. They cleaned up that time, too.
(Neil Collins is a Marstons shareholder)