“Sinking companies around the world that need to raise new funds have found their last salvation in the face of sovereign funds from different countries, writes Bloomberg. However, this approach still carries risks as it can put pressure on stock prices.
The publication cites the example of three major British companies actively seeking investors: car manufacturer Rolls-Royce, the operator of shopping centers Unibail-Rodamco-Westfield, and IAG, the main owner of British Airways. All of them faced serious financial problems because of the coronavirus pandemic and had to enter the capital markets.
Due to the sharp decline of the stock market in different countries, any announcement by companies to attract new investors and place an additional share issue on the stock exchange played into the hands of hedge funds, which benefited from lower quotes. They take advantage of the negative news background around the company and buy out its shares in the market to return the securities previously borrowed by brokers.
Thus, raising additional funds often turns into new problems. The way out may be to sell a new share issue to sovereign funds, which governments of different countries use to invest budget revenues.
IAG has already sold a 25 percent stake in its shares for 2.7 billion euros to the sovereign fund of Qatar. Among the applicants for the additional issue of Rolls-Royce is a Singapore fund GIC.
However, even in this case, the share price is unlikely to rise significantly, as the same factor plays a significant role — the negative news background around the company. Because of this factor, many investors are actively selling securities from their portfolios, which is not hampered by underwriting banks (the organizers of the issue). It is in their interest to buy the issue from the issuer at the lowest possible price and resell it more expensive in the secondary market after the recovery in demand.
