Raising the stakes
Shareholders more likely to support capital raising for expansion than to service debt
The best reason for shareholders to support a rights issue is to enable a company to grow. Supporting a distressed company is likely to be more expensive in the long run than making a quick exit when the cash call arises
The JSE has welcomed with more or less enthusiasm some substantial capital raisings in the first 10 months of the year, including the huge US$1bn rights offer by Sibanye-Stillwater and the capitalisation of several spin-off companies. Despite a stalled economy, total equity issued on the JSE in all forms this year, including share options, is similar to last year, but it includes a few very substantial share issues for acquisitions. That could be an indicator of market health — or an imminent apoplexy. Investment analyst Chris Gilmour says Liberty Life founder Donald Gordon had an exceptional "nose" for the market. Every time Liberty raised capital on the JSE it signalled the market was about to top out. "Historically, heightened merger and acquisition activity usually precedes a fall in the market, as corporates scurry to do deals before the market falls. Rights issues tend to fall into a similar space," he says. "We could be seeing that now — companies are nervous about a correcti...
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Subscribe now to unlock this article.
Support BusinessLIVE’s award-winning journalism for R129 per month (digital access only).
There’s never been a more important time to support independent journalism in SA. Our subscription packages now offer an ad-free experience for readers.
Cancel anytime.
Questions? Email helpdesk@businesslive.co.za or call 0860 52 52 00. Got a subscription voucher? Redeem it now.