UK-listed companies have tapped shareholders for more than £10bn since the Covid-19 pandemic took hold, with some looking to top up acquisition war chests and others raising emergency funds to ride out the deepest recession for centuries.
At least 69 companies have issued equity valued at £5m or more since the middle of March for pandemic-related reasons, raising £10.5bn in total, according to data compiled by analysts at Peel Hunt. A total of £2.8bn of equity was raised by 14 companies in the past fortnight alone, with gambling group Flutter Entertainment issuing stock worth £813m to take advantage of “opportunities” caused by turmoil and expand its US business.
The coronavirus pandemic sent markets plunging in March, although equities around the world have rebounded at a speed that has confounded some analysts. In the UK and elsewhere, companies in some of the worst-hit sectors, such as travel and leisure, moved quickly to issue new shares to shore up their balance sheets as sales plummeted.
Jonathan Parry, a partner in law firm White & Case’s capital markets group, said that when the crisis hit, a series of planned initial public offerings were shelved and “we flipped quite quickly into equity raisings”.
One of the first companies to market was high street retailer WHSmith, which issued stock worth £166m in early April to protect the business in what it described as “the most challenging of trading environments”.
As the initial panic began to subside, however, opportunists looking to differentiate themselves from their competitors began to tap shareholders for funds to support growth or potential M&A deals.
Last month online fashion retailer Boohoo issued £198m in equity to “take advantage of numerous opportunities” likely to emerge in the coming months, including possible takeover deals.
Companies are obliged to use the proceeds from an equity issuance for the specific purposes outlined when the placement was announced, but some have been vague on their intentions. Catering group Compass raised £2bn last month, for example, saying the money would be used to “strengthen the company’s balance sheet and liquidity position” in order to “support long-term growth” and ensure resilience “in the event of further negative developments in the pandemic”.
Tom Johnson, head of equity capital markets for Emea at Barclays, said the bank was now seeing a roughly 50:50 split between opportunistic and emergency placements, following an initial flurry of fundraisings from companies in trouble.
“We would expect to see more rights issues once half-year numbers are announced and companies look to address longer-term capital structure issues,” he added.
If companies are looking to spend the funds raised on doing deals, they have some stiff competition: analysts note that private equity firms and hedge funds are also looking to move in on companies trading at distressed prices.
“We are expecting to see opportunism [from private equity] in certain sectors, particularly the real estate sector,” said Julian Stanier, a partner at law firm Pinsent Masons who specialises in corporate finance.
Fabian de Smet, global head of equity syndicate at Berenberg, the German investment bank, said hedge funds had been “coming to us with a shopping list” of businesses that they thought were fundamentally valuable but had been badly affected by the impact of the pandemic.
Peel Hunt said the market reaction to the bumper crop of corporate share sales had been broadly positive, noting that the share prices of almost all of the 69 companies had risen since the placements. Shares were offered at an average discount to the previous day’s close of 8.1 per cent.
That is a bigger price reduction compared with placings at the start of the pandemic: between mid-March and early May, shares were issued on the UK market at an average discount to the previous day’s close of 4.4 per cent.
Bankers and lawyers agreed that shareholders had in general been supportive of companies’ efforts to bolster their balance sheets.
“If you take the view that any particular company is going to get through Covid-19, and it’s well managed and it will still be in existence this time next year, then actually you could argue that these shares are very well priced,” said Mr Parry.
This crisis is different from 2008, as “no one is really responsible for what is happening” and investors “know it’s bad luck”, said Mr de Smet.
But Christopher Rossbach, chief investment officer at J Stern & Co, an asset manager, took a dimmer view, saying that investors in some companies that were doing emergency fundraisings were “throwing good capital after bad”.
“That capital isn’t going towards realising opportunities; it’s going to shore up existing businesses,” he said. “Should you be investing in those companies in the first place?”