Surprisingly little comment so far on the prospect of the HBOS rights issue failing. The shares are down another 4.3% today at 293p – another 6% fall and the rights will be underwater (and it’s not even trading ex- yet).
In contrast to the Bradford & Bingley rights debacle, I do not think that the underwriters (Dresdner and Morgan Stanley) will be able to extricate themselves from their underwriting commitment. Whilst there will almost certainly be a Material Adverse Change clause, my belief is that HBOS will be able to argue that any deterioration in its business has been ordinary course, and hence not sufficient to trigger the MAC.
Which, interestingly, puts the balance of power in HBOS’s hands. Clearly, they will not want a large rump of shares to be left in the hands of Dresdner and MS, but this will look even more unappealing to the underwriters themselves. As a result, I think HBOS will force the underwriters to come up with a creative solution to minimise the embarrassment to both sides. Perhaps they will bundle some warrants with the shares so that shareholders are more likely take up their rights? Hardly likely to get the pulse racing.
But another repricing would be an absolute disaster for all involved (and will accelerate the putative Barclays rights issue which I’m convinced is around the corner).
Posted by quonga 