Stand by for more rights issues in 2008, says Jordans
Credit crunch will make rights issues more attractive to businesses keen to access new funding – but small firms need to tackle late payment.
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Corporate services provider Jordans says rights issues will become an increasingly popular way for companies to raise cash as the credit crunch takes hold in 2008.
In the wake of the high-profile announcement of rights issues by RBS and HBOS, Jordans believes that other businesses will increasingly follow the banks’ lead as they look to raise extra funding and strengthen their capital base, as traditional options such as bank loans become increasingly difficult to obtain.
Rights issues involve a business offering new shares to its existing shareholders, at a level below market value and in proportion to their shareholding, in return for cash payment. They can be used by companies to raise funds, for example, for re-paying debt, for working capital requirements, or to finance the acquisition of a new business or property.
“In anticipation of tough conditions in the financial markets for at least the remainder of this year, the recent announcements of rights issues by Royal Bank of Scotland and HBOS, the UK’s biggest mortgage lender, came as no surprise to many financial commentators,” says Nick Rees, chief executive of Jordans, which helps private, and privately-held public companies, to prepare documentation for rights issues.
“The fact that some of the big high street banks have resorted to rights issues was a symptom of their liquidity problems. Now, with bank lending slowing down, this means that for many businesses, announcing a rights issue of their own will be an increasingly attractive way of raising capital, particularly those with a high proportion of debtors.
“The banks have set the precedent, and with the cost of debt rising and the cost of equity at its lowest level since 2001, rights issues, particularly those of the discounted variety, will undoubtedly be an attractive option for larger companies, especially in sectors such as house building, leisure and retail.
“A rights issue is an excellent way of raising funds, provided the right structure is put in place for the shareholders, so it is essential that the process is managed in the right way with advice from a professional provider.”
However, Mr Rees warns that for smaller companies without a large number of shareholders, rights issues are not an option.
“It therefore goes without saying that small businesses will have to look elsewhere when looking for ways to strengthen their balance sheet in the current challenging conditions,” he comments.
“It is these same businesses which often suffer the worst effects of late payment from suppliers – in fact, recent research has shown that the average amount owed to an SME at any one time in the UK is £30,000.
“Therefore it is imperative in the current climate, particularly with insolvencies on the rise, that smaller companies put strict cash flow management, and reducing their number of ‘debtor days,’ at the very top of the agenda. This will help them to ride out the effects of the credit crunch that we are experiencing.”
ENDS 8th May 2008
For further information please contact Neil Fraser, Sturgess Van Damme on 01275 349011 or email
neil@sturgessvandamme.co.ukNote to editors
• Jordans Limited has been providing professional business services for over 140 years. These services now include company formations and administration in the UK and internationally, business information and conveyancing support.
• Jordans have been offering company formations for all of its 140 years. As well as forming all types of companies, they provide software – Incorporator - for clients who undertake volume formations and PCSec, a software package which helps company secretaries administer their companies.
• Jordans have been providing international corporate services for many years. With offices in Bristol, London and five offshore locations (Jersey, Gibraltar, Cyprus, British Virgin Islands and Seychelles) Jordans Ltd is able to provide full UK and international support for their clients. International services include setting up UK or offshore companies and trusts, company management and professional trusteeship.
• Jordans’ business information services include company searches, data sales (either large or small batches of data on companies and directors) and three branded products – JordanWatch, a database of information and reports on companies, NameGuard, a company name-watching service, and KYC (Know Your Client) Reports used for anti-money laundering information.
• Jordans Limited has been in the property search business for 30 years and has been offering online search ordering for several years. Their service spans more than 70 different searches, ranging from all the standard searches, including local authority, drainage and environmental, to the many special requirements for individual properties and localities, such as searches for mining, transport and chancel repair.
• Jordans has over 100 years of conveyancing experience and is one of only three National Land Information Search channels providing local authority searches electronically. The company offers a comprehensive HIPs package, delivering all elements of the pack efficiently and within the quickest possible time.
• Jordans are committed to providing a first-class service and enjoy a reputation for quality, reliability and professionalism.
