Rights issues leave companies with cash, but sometimes also unfinished business. London-listed miner Lonmin and emerging market lender Standard Chartered raised a combined $5.5bn on Dec 11. The response should be relief, but shares in both have lagged where they ought to be. Lonmin got a cold shoulder from more investors, but StanChart faces bigger questions.
Lonmin’s cash call was smaller at $409m but more urgent. Its 46-for-one share issue reflects the dire straits in which its platinum business has ended up. According to the ex-rights price – or where the shares would notionally settle once the right to take up the offer price elapsed on Nov 20 – Lonmin’s shares should have traded at 1.3 pence per share. Instead they fell 4% below it on Nov 20 and by Dec 11 that gap widened to 28%.
The market hasn’t been kind to Lonmin. Platinum is down over 10% since its new shares were priced. South Africa, where its business mostly resides, is in political turmoil, and the currency is sliding. There’s another, downward force. Only 70% of Lonmin’s rights were taken up by investors, leaving around 28% of its newly enlarged stock in the hands of underwriters. That creates a big overhang.
StanChart also has suffered because of poor peer-market conditions since it priced its shares. But investors, even though they took up almost all of their rights, are also giving a vote of diminished confidence. After StanChart old shares were shorn of the right to buy new shares on Nov 23, the stock fell to 15% below its theoretical settling price. And the 9.8% further fall since then is worse than the decline in the Euro Stoxx Banks index.
That’s perhaps not surprising. StanChart, under new boss Bill Winters, is years from earning a return above its cost of equity. Since the new money will mostly go to bolstering the balance sheet rather than promoting productive lending, the return on the new money may be even lower. That might explain why, while Lonmin seemingly faces graver challenges, it’s StanChart to whom the market has blown a bigger raspberry.
John Foley is Reuters Breakingviews’ editor for Europe, the Middle East and Africa. The article was initially published at Reuters.
