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The right time for rights issues

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By Sam Kerr
06 Aug 2020

Equity capital markets are preparing for a busy autumn, with companies looking to raise cash to survive and thrive through the Covid-19 pandemic. But the window for raking in money may well be small, with a number of factors, of which a rising infection rate is only one, threatening turbulence for some time to come.

International Consolidated Airlines Group (IAG) said in its rights issue announcement last Friday that it did not think passenger demand would return to 2019 levels until 2023.  

As shocking as that sounds, sources close to the deal have since said that investors are getting their heads around the idea.

This is encouraging but it is too easy to see the world through rose-tinted spectacles. International stock markets are still far above where they were in March and businesses across Europe have reopened, showing some sign of tentative recovery.

But should a spike in infections threaten in the autumn and winter, at that point investors may be spooked out of placing large bets on even bigger capital raises, especially if there is a resumption of strict lockdowns.

Other factors will be in play too, not least November's US presidential election, which could bring with it greater market volatility.

Companies should raise capital while they can, goes the old adage, not when they absolutely need to.

On Thursday, UK property group Hammerson did just that, launching a £550m rights issue worth 129% of its market capitalisation.

The wave of capital raising so far this year shows that most companies can raise funding to repair their balance sheets and even pay for further growth. But a longer pandemic means, at some point, many more will be forced into the market to do the same.

Those that get the funding over and done with will be in much better stead than those that try to tough it out, hoping for better times to come.

By Sam Kerr
06 Aug 2020