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Raising the stakes: small and mid-cap issuers pivot to rights issues

While many ECM bankers in Europe have bemoaned a lack of primary capital raising activity in Europe, the beginning of 2023 has been the busiest start to a year for rights issues in over twenty years.

While there have been few blockbusters with the drama of Credit Suisse’s 2022 cash call, or the sheer size of EDF’s state-backed rights issue in April last year, for the equivalent of USD 3.5bn, smaller issuers have turned to equity financing to shore up balance sheets.

While only the USD 2bn equivalent rights issue of Tui [ETR:TUI1] broke the billion dollar mark, there have been 187 rights issues in Europe so far this year raising USD 11.2bn, according to Dealogic data.

This surpassed 139 deals YTD22 but volume over that period was higher at USD 13.3bn. The lack of large deals is masking the fact that far greater numbers of European corporates are turning to equity finance as interest rates rise.

While there have not been many large rights issues this year, a relatively diversified series of deals came to market from sectors including real estate - Care Property Invest [EBR:CPINV], Cofinimmo [EBR:COFB], Castellum [STO:CAST]- and energy companies like France’s Neoen [EPA:NEOEN].

Many ECM bankers expect more activity this year, with issuers laying the foundation for M&A efforts or long-term strategic endeavours.

“This year rights issues are situation-driven more than anything else. The market is always happy to finance growth moves or the right financial structure for a company after internal changes,” an ECM banker in the process of organising an upcoming rights issue said. “Depending on the case, investors are happy to support any type of deal.

Possible 2H23 rights issues include cash calls for Carel Industries [BIT: CRL], an Italian manufacturer of temperature and humidity control, and Atos [EPA:ATO], the France-based IT group in talks to sell 100% of Tech Foundations to Luxembourg-based financial firm EP Equity Investment (EPEI).

The ECM banker said a lack of major balance sheet stress should not be seen as an impediment to wider equity capital raising.

Changes of corporate structures, and more aggressive inorganic growth and M&A agendas, means issuers are still happy to tap the markets and equity is for many a far better shout than expensive debt.

With wider equity indices relatively healthy, it may be a time for Europe’s large-cap giants to join their smaller peers in the primary equity market. Nobody wants to miss the boat.

Analytics by Raj Saiya

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