HBOS finds few takers for its rights offering

Posted Jul 21st 2008 12:27PM by Tom Taulli
Filed under: Deals, Private Equity, Morgan Stanley (MS)

HBOS Plc is the largest mortgage operator in the UK. And yes, it needs lots of money to shore up its balance sheet.

Unfortunately, raising capital has turned out to be an extremely tough task.

When HBOS engaged in a rights offering, only about 8% of outside investors subscribed. As a result, the company's underwriters -- Morgan Stanley (NYSE: MS) and Dresdner Kleinwort Ltd. -- are now stuck with $7.6 billion in unwanted securities.

Since this was a firm commitment offering, HBOS was able to get its much-needed cash.

However, the problem is that this deal is likely to chill further investment in the UK banking sector. After all, who would want to take on the risk?

Thus, while there may be more capital infusions from private equity firms, which have large amounts of capital, no doubt their term sheets are likely to be quite onerous.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Tags: HBOS Plc, HbosPlc, inthenews