It’s hard enough to persuade your bank manager to agree new terms for your overdraft, but when there are 300 lenders who are owed nearly 4 billion pounds between them, it’s perhaps no wonder that Yell’s refinancing seems to be taking forever.
Britain’s state-controlled banks appear to be playing a game of tit-for-tat. Lloyds Banking Group last week admitted it was looking for ways to reduce its exposure to the government’s insurance scheme for toxic assets. Now it turns out that Royal Bank of Scotland is also sounding out investors about tweaking its own involvement in the scheme.
Bob Scott was the senior independent director at the Royal Bank of Scotland when the board approved the 700,000 pound pension for disgraced former chief executive Fred Goodwin. As the storm broke, it quickly became clear that his position as chairman of Yell, the heavily-indebted Yellow Pages group, was untenable.
Talk about hitting the ground running. Even though he doesn’t formally take charge until next month Win Bischoff, chairman-designate of Lloyds, is reported to be pressing for the bank to raise up to 15 billion pounds through a rights issue and to scale back its participation in the government’s Asset Protection Scheme (APS).
Crispin Davis wanted to bolster Reed Elsevier’s risk management business when as chief executive he spent $4.1 billion on ChoicePoint.
Last year’s acquisition was not a bad one — it’s a ray of light in Thursday’s otherwise largely depressing results for his successor Ian Smith — but the debt taken on to fund the deal is looming over him after the failure to sell the RBI magazines business.
Instead, he has been forced to raise around $1.65 billion in a large, unpopular share placing to keep on top of the $8.4 billion debt pile. A failure of risk management, then. It suddenly seems a long time since Reed handed some $4 billion from the sale of its education business back to shareholders at the beginning of 2008.
Reed is not alone in having to take such drastic action — drinks can maker Rexam needed a rights issue to keep the credit markets onside — but the 15 percent fall in Reed’s shares reflects the nasty surprise.
Reed and its advisers can expect some flak from the Association of British Insurers (ABI) which hates these big share placings because they threaten the first-refusal rights of existing shareholders.
Reed has stretched the 10 percent new share concession to the limit, adding 9.9 percent to its existing issued capital.
It protests that debt repayments are comfortably far into the future, but the move still smacks of “needs must” and Reed admits that its credit metrics are “too stretched” given the economy and its business cycle.
Add that to a retreat from its profit guidance for the year, and it’s no wonder shareholders are spooked.
Like the contents of a supermarket bargain bin, the dent in the world’s biggest can-maker Rexam is much deeper than it looked at first sight. What had seemed like a clever way to avoid losing investment-grade status for its debt has turned into something much worse, and Wednesday’s rights issue is only a step away from a rescue by shareholders.
from Neil Collins:
Here is Giles Thorley's record of maximising long-term value for his shareholders, the aspiration when he floated Punch Taverns in 2002. As you can see, it hasn't quite worked out, and in order to have any long term at all, the shareholders are being asked to put up roughly last Friday's entire market capitalisation in new capital.