WHEN ROYAL & SunAlliance announced a pounds 1bn rescue rights issue a month ago, I lambasted the company and its advisers for unnecessarily incurring more than pounds 30m in underwriting costs.Given that the issue was deeply discounted, it seemed incredible the underwriters would ever be called upon. It was money for old rope, I wrote, from a company that could ill afford to be profligate.<\/p>\n
I was totally wrong. The shares have been sinking ever since and after a fall of another 4.7 per cent yesterday, taking the collapse in the share price since the rights issue was announced to more than a third, there’s now every chance of the underwriters being left on the hook. Another 11p fall in the shares and the rights will be valueless. For the new team at the top, John Napier as chairman and Andy Haste as chief executive, it would be an appaling start to what was meant to be a new beginning.<\/p>\n
The problem they’ve got is that the rights announcement forced the disclosure of a truly terrible state of affairs at Royal – far worse than the City had up until then appreciated. As Morgan Stanley succinctly put it yesterday, what they have done is “raise the maximum capital possible rather than what was actually required to put the group on a sound footing”, and then made the numbers fit around it.<\/p>\n
Morgan Stanley reckons that the pounds 500m of extra provisions set aside for the US business falls short of what would be prudent by nearly pounds 300m. The capital raising therefore leaves no scope for more shocks or disappointments. The rights issue, and with it what little remains of Royal’s stock market credibility is sitting on a knife edge as the hedge funds move in for the kill. It will require all Cazenove’s powers of persuasion to prevent a rout.<\/p>\n","protected":false},"excerpt":{"rendered":"
WHEN ROYAL & SunAlliance announced a pounds 1bn rescue rights issue a month ago, I lambasted the company and its advisers for unnecessarily incurring more than pounds 30m in underwriting costs.Given that the issue was deeply discounted, it seemed incredible […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-1235","post","type-post","status-publish","format-standard","hentry","category-hedgeco-news"],"_links":{"self":[{"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/1235","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/comments?post=1235"}],"version-history":[{"count":0,"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/1235\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/media?parent=1235"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/categories?post=1235"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.hedgeco.net\/news\/wp-json\/wp\/v2\/tags?post=1235"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}