Time for the banks to re-lend their new money
When debt markets close the hope is that equity markets remain open. The banks gave a glimmer of hope that was true with their rights issues: the experience of housebuilder Taylor Wimpey suggests that when you’re down, equity investors don’t want to know you either.
The advance publicity that Taylor Wimpey was to raise £500m by issuing new shares to relieve its debt problems turned out to be no more than that. And when investors failed to stump up the extra capital it exposed the vulnerability of the builder to anyone who had failed to spot it originally.
The company’s share price thus slumped so far it was immediately valued at less than the £500m it hoped to raise. This would not have been a refinancing but a takeover by the new investors.
Builders are a particular problem (and Taylor Wimpey is not the worst case) but so are banks and now retailers are heading into this territory too, suggesting this is not a minority problem after all. But it is becoming clear the banks have scooped all the available cash with rights issues and placings totalling more than £20bn and there is little if any money left for those further back in the queue.
It is not unreasonable that funds are reluctant to invest in a company to which banks will not lend but it is evidence that not only has bank lending dried up, not only has private-equity disappeared (though this was actually always more private lending than equity anyway), but the stock market cannot be relied on as a source of cash either.
As the banks have scooped the pool, perhaps they will feel it their duty to re-lend their new equity to the builders and others unable to sell new shares?
