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Breakingviews

Breakingviews - Vaccine shoves open door for year-end capital rush

A woman holds a small bottle labeled with a "Coronavirus COVID-19 Vaccine" sticker in this illustration taken, October 30, 2020.

LONDON (Reuters Breakingviews) - Hopes of a Covid-19 vaccine have already given equity capital markets bankers a boost. As stock markets soared after encouraging test results from Pfizer and BioNTech, companies in hard-hit sectors like travel and leisure rushed to top up their balance sheets. With the end of the year looming, smaller equity issues and instruments like convertible bonds may go down better than big, drawn-out offerings.

Combined with the result of the U.S. presidential election, Monday’s positive vaccine update had dramatic effects. Shares in U.S. cinema operator AMC Entertainment gained more than 70%, cruise-ship owner Carnival was up nearly 40%, and Deutsche Lufthansa jumped by almost a third. Some of those companies wasted little time in taking advantage: the German airline on Tuesday launched a 600 million euro convertible bond, and Carnival announced plans to raise $1.5 billion from shareholders. American Airlines is also selling equity.

The rush to raise capital looks perverse. An effective vaccine should let companies return to business as usual, reducing their need for emergency cash. Listed firms have raised a record $853 billion so far this year, according to Refinitiv data. Asking for more could appear greedy or indicative of poor financial planning. Carnival’s request on Tuesday came less than two weeks after it wrapped up another $1 billion cash call. The new optimism also gives investors new cause to resist: shareholders in Unibail-Rodamco-Westfield on Tuesday rejected the property group’s 3.5 billion euro rights issue.

Chief executives thus have plenty of explaining still to do. And with the traditional year-end slow-down looming – less the days that U.S. markets close for Thanksgiving – there’s little time.

This points to smaller, simpler deals. So far, investors seem keen. Appetite for Lufthansa’s convertible bond was so strong that the airline expanded the offering by 75 million euros, while giving investors a meaner coupon and less attractive price at which they can flip bonds into shares. In the United Kingdom, companies face added pressure to hurry. A provision that allows them to raise up to 20% of their market value from big investors without seeking shareholder approval – rather than the normal 10% – is due to end on Nov. 30. Their bankers face a rush to get through the door.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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