As we have reported this week, there’s been more cash raisings from the market in the past week, some substantial (Billabong and Nufarm, around $300 million each) and many smaller.
There’s talk of other groups coming to the markets, with the ANZ Bank on a few lists to raise fresh capital ahead of the market getting indigestion, and the end of the shorting ban on financial stocks next month.
A lot of new capital has been raised and more will probably follow.
Though it’s doubtful at the same pace as we saw in March and April when the amounts raised ran in the billions of dollars a week.
In the 9 months to March this year there was $32.3 billion raised in secondary issues by listed companies, with a huge $13.1 billion coming last December when QBE, Westpac and the Commonwealth Bank raised $6.5 billion between them.
Santos’ $3 billion issue earlier this month has been close to the largest so far
Research issued this week from Citigroup looks at the capital raisings so far in calendar 2009
"Equity issuance in 2009 has been equal to $35bn, or 4.2% of the average market capitalisation over the period," Citi wrote in a note to clients.
"Rights issues in the month of May so far have been worth $8.7bn (compared to the record monthly high in the prior bull market of $5.3bn in July 2007).
"Calendar year to date, ASX listed companies have raised a touch over A$35bn of equity capital, this equated to 4.2% of average domestic market capitalisation over the same period.
"The equity raisings have been made up of $13.5bn of placements, $15.4bn of rights issues, $2bn of share purchase plans and $3.5bn of dividend reinvestment plans.
"Compared to previous periods of heavy equity issuance, this cycle has been skewed almost entirely towards rights issuance and placements with IPO activity in hibernation.
"When scaled by market capitalisation, the current quantity of issuance is around twice the level at which the market has had to digest new equity over the last 5 years.
"Taken in isolation, the sheer quantity of this equity being issued would be a cause for concern," Citi said.
But the broking house said there’s sufficient "pent-up demand for equities to be sufficient in meeting supply".
"Record Pent-Up Demand – At present we estimate the pool of “investable cash” to be approximately $200bn.
‘This is a record amount both in terms of absolute level, and in relative measures when scaled by domestic equity market capitalisation or total funds under management.
"If portfolios were to return to asset weightings that reflected historical norms, we could expect approximately $100bn to be taken out of cash, although not all of that would be earmarked for Australian equities.
"Issuance Not a Market Negative
– We are cautious on the Australian equity market as FY09 reporting season looms; but neither equity issuance nor value are amongst our particular concerns.
"Corporate Australia is modestly geared; and the combination of excellent value (high equity earnings yields vs. bill rates) and cash availability mitigate issuance indigestion risk in our view.
"Model Portfolio Includes Issuers – In line with our view that equity issuance is in many cases more a comment on credit market illiquidity than on corporate fragility, our model portfolio includes a number of recent issuers: Suncorp- Metway, IAG, OneSteel, Fairfax Media, Wesfarmers and Qantas.
"In general, these constitute "good value survivors" at various levels of risk."
"Putting that $35bn raised this year in perspective, we believe there is around $200bn of cash on the sidelines in the domestic managed funds market, including a $100bn overlap versus normal cash weightings.
"Alternatively, the Australian equity demand in a normal year arising from the compulsory Superannuation Guarantee Levy is a little over $17bn ( 9 million employees x $60,000 average annual income x 9% x 35% allocated to Australian equities.
"However, given that this spate of issuance is occurring in the teeth of excellent equity value, we do not believe that the magnitude of the issuance is a concern for the market here.
"(We do have continuing reservations about the outlook for equities on a three-month view, but those concerns relate to earnings risks and a belief that the rally has "exceeded a speed limit"; they do not arise from value or supply/demand considerations).
"If anything, there is a risk of corporate Australia becoming undergeared, and setting up a decade of re-gearing as and when credit markets normalise and confidence returns.
"In one sense, investors are left scratching their heads at corporate Australia — companies pursuing buybacks and rejecting takeover bids at the market highs of the 2007 bull market, and now issuing stock (in some cases below book value) with the market 40% lower."
So, according to Citi, no worries, but if you read Dr Shane Oliver’s update on the local and global economies, you’d be entitled to think that we may see one final rush to market to catch higher share prices before investors start saying no by refusing to fund them or demanding deeper discounts (and higher dilution).
The reason why we have seen an escalation in raisings in April and May is the bounce in share markets, which have seen more and more companies return (such as BlueScope) or decide to go (Nufarm, Santos, Billabong and APN, for example).
A feature of some of the raisings in t
