Corporate Financing Analysis - Rights Issues To Remain A European Favourite - 22 JAN 2018
Fuelled by a flurry of activity in Europe, rights offering, which have long been a favourite capital raising avenue for the banking sector, enjoyed a renaissance in 2017. In BMI's view, such activity levels are unlikely to be sustained across the course of 2018; however, we do expect to see a continued flow of deals, with Europe once more dominating the deal horizon. As such, financing instruments continue to remain an unfancied fundraising tool in the US. We highlight, however, that there is good reason for this: US firms looking to raise fresh capital do not necessarily need to turn to rights issues for help, while in Europe (where the banking sector is still reshuffling in the fallout from the Eurozone debt crisis) they provide a more useful avenue for companies in search of capital.
Making The ' Cash Call '
We predicted back at the start of 2017 that last year would be a busy year for rights issues, and this view has played out perfectly ( see ' 2017: Bumper European Bank Capital Raising Year ' , March 1 2017). According to data from Zephyr, a Bureau van Dijk product global rights issues tallied USD141,337mn via 1,257 deals across the course of 2017. While down for the third consecutive year by deal volume (from 1,539mn in 2016 and 1,684mn in 2015), the increase in the combined value of rights offerings worldwide saw the 2017 tally climb to its highest level in three years and record a 47.55% y-o-y increase from the USD95,788mn haul in 2016, which itself represented the lowest full-year value of such deals since back in 2004. The regional breakdown of activity displayed a clear trend and maintained the historical hierarchy for such deals: Europe dominated issuance while the US saw a decline in such deals. Indeed, 2017 played host to as few as 14 rights issues from the US worth a combined USD1,424mm. This was a sharp drop off in both deal volume and deal value from the 29 deals priced tapping existing investors for a combined USD4,044mn a year earlier in 2016. In Europe, meanwhile, activity levels by deal volume declined too - falling to just 349 deals, a post global financial low and down from 421 deals a year earlier - but by deal value, the market saw a near two-fold increase in activity last year. The region may be the traditional home of rights issues, recent activity continues to cement that position, even as issuers in Asia develop a growing taste for such deals as we have seen over recent years ( see ' Cash Calls Take Centre Stage In Asia ' , March 23 2016).
|2017: A Hard Act To Follow|
|European Rights Issues By Deal Value, USDmn|
|Source: Zephyr, a Bureau van Dijk product|