William Hill joins rights issue rush

The accelerating rush to tap investors for capital, which will also be joined by Premier Foods, the country's biggest food producer, will underline the growing need of major corporate names to repair their balance sheets as they brace themselves for a protracted downturn.

The continuing flood of rights issues will also intensify the debate about the traditional pre-emption rights of existing investors to participate in new fundraisings.

Premier Foods, which owns Hovis bread and the Mr Kipling cakes range, is drawing up plans to announce a £400m rights issue alongside its results. The company is also in talks to attract a cornerstone investor that would subscribe an additional sum of new equity on preferential terms. The prospective investor is understood to be a large US private equity fund.

Premier is discussing the plan with institutional shareholders, some of which have said that they do not want to see a new investor subscribe to new equity on potentially better terms than they would receive.

The debate about pre-emption rights has been inflamed since Barclays decided to raise billions of pounds from a group of Middle Eastern government-backed funds last year. Under the terms of that capital-raising, the new shareholders were issued tax-deductible securities which paid a coupon of 14pc. Legal & General Investment Management (LGIM), the City's largest institutional investor, is now understood to be calling for the resignation of Marcus Agius, the chairman of Barclays, following the controversial fundraising.

Rio Tinto, the debt-laden mining group, added further fuel to the ire of City institutions last week when it agreed a deal with Chinalco, the state-controlled Chinese aluminium producer. The Association of British Insurers wrote to Rio Tinto chairman Paul Skinner before the announcement was made, but to no avail.

Chinalco agreed to inject $19.5bn (£13.5bn) into Rio, $7.2bn via a convertible bond issue and the rest to purchase minority stakes in nine mines. Now major shareholders are calling for the deal to be scrapped and are trying to get the company to undertake a $10bn rights issue.

William Hill is understood to be plotting a rights issue to raise about £200m, to be announced later this month. The rights issue is to be fully underwritten by Citigroup, and would form part of a £1.2bn refinancing designed to steer the group through the deepening recession.

Among the other companies examining raising capital is CRH, the Irish industrials group, which is understood to be examining a rights issue to raise about €1bn (£894m).

The first FTSE 100 group to unveil a rights issue in 2009 was mining group Xstrata. However, this deal had its fair share of controversy too. The company did not ignore pre-emption rights, but a deal with its largest shareholder raised concerns about related-party transactions.

The company announced a two-for-one rights issue raising £4.1bn. Part of the deal involved Xstrata buying a coal mine from Glencore, the Swiss commodities trader and Xstrata's largest shareholder with a 35pc stake, for $2bn.

One investor called the transaction a "cheap loan to Glencore" adding that "if these were normal times, we'd vote it down and ask them to come back with a proper rights issue. But we don't have much choice."

One sector where rights issues seemed inevitable was property. This has been caused by the tumbling value of commercial property and the high degree of leverage built up when the property market was soaring.

First off the block was Workspace group, which provides serviced offices throughout London. The amount raised was a relatively small £87m via a five-for-one rights issue to restore its balance sheet and cut debt. Workspace was the first UK real estate investment trust (REIT) to concede such a cash call, but it was closely followed by retail property group Hammerson, which needed to shore up its balance sheet to stop it breaking banking covenants.

The company, whose portfolio is dominated by shopping centres and retail parks, offered shareholders seven new shares for every five held, at a 62pc discount.

Last Thursday, British Land became the latest large property company to tap investors. The company raised £740m to reduce debt but also to exploit buying opportunities as commercial property values plunge amid the economic downturn.

Both Liberty International and Land Securities, the UK's largest commercial property group, are predicted to follow with fundraisings of their own.

Other groups that have raised cash through rights issues in 2009 include insurers Beazley and Catlin, as well as Cookson.

As the global economic turmoil continues companies are trying to be more creative in the way they raise cash. As Barclays and Rio Tinto's example shows, the route to new funds can be paved with difficulty and controversy. One thing you can be sure of, however, is that the next few weeks will see a flood of rights issues as broken balance sheets receive some major surgery.