Everyone has Rights these days

Recent moths have seen a phenomenon virtually unknown in UK history. Massive numbers of UK companies have engaged in Right Issues; that is, raising more capital from shareholders and others.

As with many recent economic developments, it started with the Banks, but RBS and Lloyds did not take enough and ended up having to go back for more. So much that shareholders left it to the Government to take up the slack.

This weekend has seen two very different businesses tap the market. Lonmin, a solid mining business affected by the collapse in demand for metals on the one hand. On the other Debenhams, a solid and dependable UK retailer. Debenhams was one oft he companies saddled with huge debts after a private equity buyout. Luckily its 3 main directors all made £50 million each when the company re-floated a couple of years ago.

Here are he reasons I think Rights issues are now very interesting and somewhat unpredictable:

1. They are nearly all to pay back debt and obtain cheaper finance. They are Ocean Finance adverts for larger companies.
2. Share prices are reacting strangely, Sometimes jumping because sentiment says the company will survive after all, sometimes falling as shareholders seek to avoid dilution.
3. So much money is on the sidelines in the stock market, that oddly there is plenty of capital for rights issues; it can be seen as a cheap and simple way back into the market.

Currently I am looking for more opportunities for companies seeking to re-finance their bank loans through rights issues. As long as this rally continues, the companies that take this route see their bombed out share prices recover strongly.