ROYAL & SUNALLIANCE was yesterday enjoying a growing confidence that shareholders are taking to its pounds 960m rights issue after initially baulking at the request for further funds.
Investors have until tomorrow morning to take up the rights to one new share for every existing share at 70p. Shares in RSA, led by Andy Haste, the chief executive, have lost nearly half their value since the issue was announced in September, but they yesterday climbed back nearly 6 per cent to 95p. The rights to take up the new shares, which trade as a separate security, also shot up 22 per cent to 24.5p.
Goldman Sachs, Merrill Lynch and Cazenove also will have been pleased to see the sellers of the rights to RSA stocks all but dry up yesterday. The investment banks have underwritten the rights issue, earning fees of up to pounds 40m, but there were fears they would be left with a large chunk of unwanted shares on their hands.
Investors had been reluctant to support the highly dilutive rights issue after RSA confessed the capital was needed not to fund growth, but to plug holes in its reserves. Despite a pounds 1bn injection last year, they are still too thin to cover its liabilities. RSA shares have also been hit by hedge funds, which borrow stock for the short term and take a negative view that drives the price down. Up to 20 per cent of RSA stock has been loaned to hedge funds in the past few weeks. The hedge funds are now closing out their positions as institutions begin to take up their rights to the shares.
“You’ll find that most shares will be taken up,” one analyst said yesterday. “Who wouldn’t, when if you don’t you’ll find that your holding has been diluted by half?”
