Commercial paper interest rates which are 5% higher than two years ago have forced more than 20 New Zealand companies to go to shareholders with bond or rights issues, raising $4.1 billion from investors during the past five months.
None of the companies has gone away disappointed, with the exception of Tower which hoped for $81 million plus oversubscriptions but managed to just hit the minimum $81 million target.
None of the bond investors appears to have gone away disappointed, with all but Tower's bond-holders able to trade their bonds at a premium above their $1 value, since the issue in late March.
ABN Amro Craigs broker Peter McIntyre said the $800 million Fonterra bond issue, trading at a small premium of 0.5%, reflected good trading volumes, turning over $800,000 to $2.7 million a day.
However, the capital raising has been putting a strain on the pocket of investors, who, with rights issues, must stump up more cash to secure similar percentage holdings in the listed companies, or face a dilution of their stake from the increased number of shares.
The capital raising issues have spread around the world with the credit crunch and unpalatable interest rates of risk-averse banks, from the United States and United Kingdom to Australia, where $A9 billion ($NZ11.3 billion) alone was raised last month.
About $A35 billion has been raised there this calendar year and $A70 billion during the financial year, according to the Sydney Morning Herald.
The majority of companies are using the bonds and issues to underpin balance sheets, especially those whose debt is increasing in percentage terms because of asset depreciation, foreign exchange issues or falling share values, which is placing them close to breaking banking covenants.
Banks are increasingly stepping in and requiring companies to shore up finances in some way to protect their own lending position.
"No-one has gone to the market and come away empty handed," Mr McIntyre said of the capital-raising 23 companies.
For most companies, the capital raising has been an underpinning task, before things potentially get worse, but for debt-laden Fisher and Paykel Appliances, the capital raising was more critical and investors held their breath as the whiteware manufacturer rolled-over banking arrangements prior to its announcing its capital-raising plans.
Not only did Appliances announce a $143 million renounceable rights issue, but unveiled a cornerstone investor in Chinese giant manufacturer Haier which will take a 20% stake, spending up to $81 million.
Mr McIntyre believes that within the next 12 months several companies, such as PGG Wrightson, could return to the market.
He noted there was already speculation Contact Energy could be considering going back to the market.
Several players in the property sector were also yet to raise capital, or sell assets, as had ING Property, Kiwi Income Property, AMP and the Goodman Property Trust.
Mr McIntyre said with property valuations required every six months, the property companies' assets were in decline, and also subject to new accounting standards, which often raised debt levels closer to banking covenants.
"The banks are saying `no more credit - sell some assets or else raise capital'," Mr McIntyre said.
"There have been a lot of issues all at the same time. It's not going to get any easier raising capital for the rest of the year," he predicted.
Key for the second half of the year will be the July-August reporting season, when forecasts and prospects are revealed.
Mr McIntyre believed several companies would need to go to the market for more capital after that point.
"[However], the market, and investor interest is going to be driven by how much money the companies can make, not by any sentiment wishful of a ascending market," he said.
He also highlighted that while all the equity issues to date had been underwritten, guaranteeing 100% uptake of the offer, that underwriting cash could be "soaked up" and interest could wane during the next 12 months.
Mr McIntyre did not believe the high commercial paper interest rates available to companies would be "unfreezing" to any great extent during the rest of the year; therefore sharpening the focus on capital raising from shareholders.
The issue underwriters, just as the companies themselves, have bankers and shareholders to consider when they, too, raise funds to provide capital for underwriting.
They will subsequently "be getting a lot more pickier" and "insistent" on the company issues they underwrite, he said.
This was evidenced by the $133 million Nuplex issue, where the original offer was considered too dilutionary and the company had to go back to the market with a better offer, Mr McIntyre said.
For investors, however, the bond issues to date especially have been positive.
"Compared to two years ago, it [bonds] has provided a good menu of choice for investors," Mr McIntyre said.
