The Week
The Week, 30/01/09
Rights right
Investors could be forgiven for looking askance at suggestions that companies will be raising cash in right issues and share placings this year despite continuing volatile markets. It may be coming sooner than you think.
Even optimists are likely to be assuming that raising new money will be delayed to the second half of the year, given the volatility of stock markets and the expectation that recession will last well into this year if not until 2010. Indeed, it could be that the bottom of the market will be reached in mid year or later and then it will take a few months before companies risk putting out the begging bowl.
Yet there is a pent up need for many listed companies to get their hands on investors’ money. On the negative side are all those firms foolish enough to forget the lessons of the recent past that have left themselves heavily in hock to the banks. On the positive side are strong companies seeing the opportunity to buy their weaker brethren at knocked down prices.
Despite the economic uncertainty, companies in a wide ranging of businesses are managing to raise cash where they can demonstrate a sound investment case. Tullow Oil has just raised £402m to help fund development of promising wells in Africa; Helical Bar £27.7m to buy property; SSL International in health products £87.3m for expansion; Chaucer Holdings £75m to increase its underwriting capacity to take advantage of higher insurance premiums.
Unfortunately, all this cash has come from share placings rather than giving existing shareholders the right of first refusal. Yet who can blame companies for making placings, which are quick and certain, rather than rights issues that take time and could be scuppered by the volatility in the stock market.
So proposals by the Financial Services Authority and the Association of British Insurers to reduce the time it takes to make a rights issue are to be welcomed. The FSA proposal that shareholders be given 14 days to take up their rights rather than 21 is a particularly worthwhile improvement.
There’s always someone
No matter how dire the state of any economy, there are always people with money to spend, as Robert Mugabe and his family have demonstrated while most of Zimbabwe starves.
Before we point fingers at African dictators, though, perhaps we should ponder the expensive gathering of world leaders at Davos in Switzerland this week. Am I wrong to think that the World Economic Forum could be held, if it has to be held, in a less expensive country than Switzerland?
At the height of the economic crisis the people who mattered were able to coordinate action without meeting face to face. It seems as if Davos is simply a place where politicians with an axe to grind can get it all off their chest in public.
Still, perhaps that’s a good thing in itself. It may be worth the cost just to open the safety valve once a year.
Lords help us
It is a lot harder to find any justification for the disgraceful behaviour of members of the House of Lords, who think it is perfectly all right to take the taxpayers’ money then accept payments elsewhere for interfering with the due process of law making.
I note that while Lord Taylor claimed to have acted within the rules he did not claim that he was acting within the spirit of them. And it was disappointing to hear on the TV news broadcasts the suggestion by a government minister that the story in the Sunday Times had brought the house into disrepute around the world.
The implication was that if the Sunday Times had kept quiet the peers could have continued on their merry way and no-one would have worried. It was not the newspaper that brought the House of Lords into disrepute but the four lords who were greedy enough to be caught out.
I do not believe that the four lords in question are alone in accepting money for amending or resisting legislation. Interestingly, it has since emerged that some peers have set up consultancy companies to try to put a gap between their money grubbing and their ermine robes.
The most dangerous people in the world are those who think it is all right to do what they know is wrong.
It is easy to say this is the result of the reforms to the Lords and that this sort of thing never went on when hereditary peers ruled the roost. Hereditary peers protected vested interests. They just didn’t need to take so many backhanders to do so.
Politicians in both houses have long argued that they should be allowed outside jobs to broaden their knowledge of the real world. Funny how most of them still seem to have no idea how ordinary people live.
By all means let us pay MPs, peers and government ministers more but let them renounce all outside earnings.
Rodney Hobson
Author, Shares Made Simple and Small Companies, Big Profits