Tuesday, January 13, 2009

Capital raising set to become popular in 2009

As a shareholder are you feeling generous towards the companies you have in your portfolio?

Whether you are or not you may have to make a choice to chase what could be good money after bad in 2009.

The dearth of cash and credit available from normal sources-like banks-to keep businesses running, especially during the current recession, is undoubtedly going to lead to some New Zealand listed companies putting out their caps to shareholders to enable them to keep trading over the difficult times to come.

There will be some capital raising through; debt raising via bond issues, rights/cash issues and or private placements with big institutions.

Usually the domain of start up companies and especially popular during the tech bubble of the late 1990s, the terms for rights issues and other forms of capital raising was relaxed by the NZX on November 26 2008 as an answer to the credit crunch.

Both rights issues and private placements dilute existing shareholders shareholdings and of course extra debt laden onto company balance sheets through alternative methods of capital raising will impact somewhere down the line.

I would favour a rights issue or private placement myself.

I could speculate here and name a few names that might be ready to pass the begging bowl around-I am not going to-but we can be fairly sure that any company with high to medium borrowings set to mature soon and without sufficient sales and or assets to allow themselves the ability to borrow off a bank is going to have to go to shareholders with the bowl.

Of course the length of time the recession plays out will mean more companies will need to avail themselves of shareholder cash or other methods of capital raising.

There is no guarantee of course that shareholders would be willing, or able, to take a further risk by contributing their hard-earned cash and this shareholder will certainly be wanting the bargain of the century before he plunks down further cash towards any company in the Share Investor Portfolio.

The million dollar question remains though and is a more than likely scenario. What happens if the cash isn't forthcoming?

Short of a mysterious benefactor, one of those struggling investment banks or an angel investor ready to take a big slice of the company, the answer is of course bankruptcy.

Time to get out the checkbook?

Recent Share Investor reading

Long vs Short: The Warehouse Group

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Share Investor's 2009 stock picks

Shareinvestorforum.com - Discuss this topic

Related links

NZX release on capital raising relaxation (PDF)

From Fishpond.co.nz

Every Bastard Says No: The 42 Below Story

Buy Every Bastard Says No - The 42 Below Story, by Geoff Ross & Justine Troy & more @ Fishpond.co.nz


c Share Investor 2009

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