Published 23 July 2008
HBOS plc – the bank whose support enabled Strategic Finance Ltd’s former owners to buy it back – faces problems of its own after a low subscription to the rights issue which closed last Friday.
Only 8.3% of the new shares were taken up through the £4 billion rights issue, followed by a selldown of a further 29.5% by the underwriters. That has left the underwriters & sub-underwriters holding 62% of the offer, worth £2.56 billion.
Through the rights offer period, HBOS’ share price skated at lows for the year, sinking below the rights price only days before the issue closed. That made takeup a questionable proposition.
Shareholders were offered 2 rights for every 5 shares, at 275p each. Complicating the acceptance decision in a market where the share price had fallen so low, on 27 June HBOS credited shareholders with 2 nil-paid shares, again for every 5 shares held. Nil-paid shares carried the right to buy shares at the rights issue price of 275p. As the deadline approached, the nil-paid shares were trading at 6p, suggesting – correctly – that the head share price would rise above the rights price by the Friday issue close.
2 days before the rights issue closed, the price hit its low for the year of 254.5p, but raced back up to 282p by the close on Friday. The price then fell 17.5p to 264.5p on Monday. Their high for the year was 997.97p.
The low takeup of the offer leaves an overhang in the hands of investment banks but, at the bank’s annual meeting on 26 June, chairman Dennis Stevenson was firm about the need for the capital-raising even when a low acceptance seemed likely.
He said the HBOS believed the world economy was in for a far bumpier year or 2 than was envisaged even at the start of this year, so the bank had to strengthen its balance sheet. HBOS also had a more technical reason for raising money – changes arising from the Basel II regulatory system are likely to mean banks will experience greater volatility in their capital requirements. “In addition, we have taken substantial fair-value adjustments on our profit & loss account & our balance sheet recently. Although no so-called credit impairment provisions, as the accountants say, have been required, at least some of these adjustments do impact our capital.”
Edinburgh-based HBOS (Halifax Bank of Scotland) is the UK’s largest mortgage & savings provider and one of the UK’s leading general insurers.
18 July 2008: Strategic team gets HBOS backing to buy out Allco
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Attribution: Company statement, UK Daily Telegraph, LSE, story written by Bob Dey for this website.