Investors set to bankroll firms’ recovery plans

Tim Wallace
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BRITAIN’S recovery will prompt a surge in firms asking investors for more money to fund growth, Capita Asset Services predicted today.

Since the crisis companies have increased the amount of cash they return to investors on the basis that this was a better use of the funds than investing them in a low-growth period.

From 2008 to now, firms have raised £150bn in new capital but given out £399bn in dividends.

This year has seen the highest number of cash calls since 2010, with the 56 capital raisings bringing in £10.2bn in the first three quarters of the year – more than all of 2011 and 2012 combined.

Capita expects another 29 per cent rise in the coming 12 months.

“A bounceback in the amount of capital being raised by companies is not always a sign of health for UK plc – companies tend to tap the markets either in times of growth, to finance investment and acquisitions, or in times of need, to improve liquidity and meet debt obligations,” said Capita Asset Services’ Justin Cooper, noting that one-third of all equity raised from 1998 to 2012 was by banks in the financial crisis.

“While Barclays’ rights issue has clouded the picture and is another round of therapy rather than expansion, the growth in the number of cash calls in 2013 does point to a positive step forwards in FTSE companies’ recovery, as confidence in the economy improves, and firms begin to capitalise on stronger valuations to raise funds for investment.”

However, the return to growth will not all rely on funding from the capital markets – the report estimates FTSE100 firms are sitting on a total cash pile of £166bn, limiting the need for external support.