UK firms tap investors for new capital as focus turns from survival to growth
Despite dividend payments to shareholders at near record highs, UK plc has clawed back almost two-fifths of the cash paid out to investors since the start of the financial crisis, according to research by Capita Asset Services.
Since the start of 2008, GBP399.3bn has been paid out by UK plc in dividends, according to analysis of Capita Asset Services’ UK Dividend Monitor.
But over the same six year period, GBP150.2bn has been raised by UK companies in cash calls as many scrambled for capital. Companies issue shares for two main reasons: either to expand or to survive. During the boom, it was all about expansion. After the crunch it was all about survival.
The amount of capital companies have raised from shareholders has now rebounded, with GBP10.2bn raised in the first three quarters of 2013, more than twice as much as in 2011 and 2012 combined. With 56 instances of firms raising capital this year, the number is higher than in any year since 2009, marking a turning point as many firms begin to return to the market for expansion capital rather than survival capital. British Land serves as an example of the turnaround, raising GBP493m in Q1 to fund aggressive growth plans.
However, there are still vestiges of the financial crisis to be seen. For instance, Barclays’ GBP6bn recent rights issue to plug a gap in its balance sheet has inflated the increase in equity raising 2013. First Group is still in intensive care, issuing new shares to refinance a shaky balance sheet. However, even with Financials excluded, the amount of capital raised is already 18.3 per cent more than the whole of last year, and at its highest point since 2010. Some companies are still after rescue cash, but others are returning to the market to fund growth.
On present trends, around GBP11.6bn will be raised by the end of 2013, the highest annual total since 2009. But 2014 should see the amount of capital raised climb by almost a third to GBP15bn as companies act on improving demand and target growth.
The analysis of more than 15 years of London Stock Exchange data shows GBP237.7bn has been raised on the main market since 1998, through 1,801 separate issues.
Justin Cooper, chief executive of shareholder solutions, Capita Asset Services, says: “A bounceback in the amount of capital being raised by companies is not always a sign of health for UK plc. Companies tend to tap the markets either in times of growth, to finance investment and acquisitions, or in times of need, to improve liquidity and meet debt obligations. While Barclays’ rights issue has clouded the picture and is another round of therapy rather than expansion, the growth in the number of cash calls in 2013 does point to a positive step forwards in FTSE companies’ recovery, as confidence in the economy improves, and firms begin to capitalise on stronger valuations to raise funds for investment.
“While many FTSE 100 firms will fund further investment and expansion from the GBP166bn cash pile they are sitting on, an improved economic outlook, combined with Vodafone’s record special dividend should bolster activity in 2014. We expect companies planning to raise capital will cluster their issues around the payout, to target retail and institutional investors looking to reinvest the windfall.”
The major global economic trends of the past 15 years can be seen clearly by when capital has been raised on the UK main market and by whom.
More equity was raised in 2008 and 2009 than in the previous ten years combined, a total of 123.6bn (GBP50.7bn in 2008, 72.9bn 2009). Of these raisings, GBP89.5bn was raised by financials – 72.4 per cent of all cash raised in the immediate crisis, and 37.7 per cent of all capital raised on the UK main market since 1998.
Banks raised two thirds (65.9 per cent) of all capital raised in the height of the crisis, GBP81.4bn between 2008 and 2009. In fact, the amount they raised in these two years accounts for a third of all equity raised since 1998, most of which came from the government such was the extent of the damage to their balance sheets. This has continued, albeit to a far lesser extent, with GBP10.1bn raised by banks since the start of 2010.
However, it wasn’t simply banks tapping the markets for the liquidity required to survive. Property firms were amongst the worst affected by the credit crunch, as liquidity dried up, loans had to be refinanced and property values dropped. In 2009, real estate companies raised a total of GBP4.7bn in order to stay afloat – more than twice the amount they raised in all other years since 1998 combined. Land Securities group boasted the largest single issue, raising GBP785m. Equally, sectors exposed to reduced consumer demand turned to investors to raise capital and pay debts. General retailers raised GBP1.2bn in 2008, including car retailer Inchcape who secured GBP249m in a rights issue.
Companies raised a total of GBP87.5bn in in the pre-crisis boom period, as companies sought capital for expansion. While financial institutions were still the biggest players, the tech boom was evident as technology and telecommunications firms secured a combined GBP18.1bn from further issues, with GBP13.6bn raised in 2000 and 2001 alone. As part of the tech boom, consumer services firms also raised GBP14.5bn between 1998 and 2007, as media and entertainment firms got in on the act, with Pearson and Sky raising a combined GBP2.3bn in 2000.
Separately, since 1998, an additional GBP97.0bn has been raised by international companies listed on the London Stock Exchange or through AIM-listed firms. Further issues from AIM-listed firms have been much more frequent than those on the main market, with 7,695 over the period, but have raised just 18.1 per cent the amount of money raised on the main market. By way of contrast, further issues for capital are far less frequent on the international main market, with 267 raising a total of GBP54.0bn.
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