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Capital Markets

Equity markets: When rights go wrong

Recent deals from Lonmin and Saipem demonstrate that in current markets even one of the more straightforward types of capital raising, rights issues, can struggle. Is the model broken, or is this troubling evidence of just how risk-averse underwriters have become?

Saipem-R-600
Ship master Andrea Lippi walks on the deck of the Saipem 10000 deepwater drillship in Genoa's harbour, Italy November 19, 2015. Picture taken November 19, 2015. REUTERS/Alessandro Garofalo - RTS84NV
© Alessandro Garofalo / Reuters/REUTERS

Deep water: Italian oil and gas firm Saipem

The business of helping public companies raise new equity capital is hardly the stuff of radical innovation. And the most traditional and conservative method of all, the rights issue, should not be controversial.

So when the banks underwriting a $407 million rights issue by South African platinum miner Lonmin in December 2015 were left with a stick of unsold shares even after completing a rump placement, many in the market were left scratching their heads. None of the equity capital market professionals that Euromoney has spoken to in the last few weeks – many of them veterans of their trade – could remember this happening before.

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