In early 2007 Australian companies would have been issuing debt hand over fist to raise new cash, instead of approaching shareholders who were sitting on huge capital profits.

The banks, large and small, had hundreds of millions of dollars available for any sort of deal: buyout, recapitalisation, takeover, sharemarket play, topping up cash reserves, you name it, the money was there, from the banks.

The Coles takeover: cash. Over $18 billion raised by Wesfarmers. More than $11 billion was available for the failed Allco led assault (with Macquarie Bank) on Qantas. Banks like the ANZ, NAB, Bendigo and Adelaide and the Commonwealth were lending money hand over first to geared sharemarket traders, corporate insiders and companies in huge margin loans.

More than 18 months on and the credit crunch has changed the picture completely. Margin loans are still being called, debt is a dirty word in all respects and the banks are busily stuffing the balance sheets full of cash and not lending.

Tuesday’s monthly business survey from the National Australia Bank carried an ironic new sub plot: the availability of credit. The NAB reported that 25% of respondents found it tougher to get credit last month, 35% said they expected to find it tougher next month.

So it comes as no surprise then that recapitalisation of corporate Australian is not being financed by the cash rich banks who won’t lend. It’s coming from super funds, shareholders large, small and middle ranking are putting up the cash in a flood of new issues. These investors are ignoring the doom and gloom and recession talk and making a big call on the future course of the companies they are buying shares in. Forecasts tell us the economy will slow markedly next and year and 2010 won’t be any better, but for some reason these investors have looked through that and seen higher returns. It’s a confidence call.  

In many respects the same shareholders have been big sellers of Australian shares since the crunch broke in August 2007, especially bank and property shares, plus miners and those exposed to the US dollar/Australian dollar’s volatility.

So the recapitalisation continues at record pace with close to $15 billion being raised, or in prospect since early last month.

This morning, more than $1.3 billion in issues were revealed, with Sonic Healthcare looking for $350 million, Transfield Services $200 million, Incitec Pivot over $800 million.

We’ve just seen the National Australia Bank raise $3 billion, up from an original $2 billion, Mirvac raise half a billion, Stockland, $300 million, GPT upwards of $1.6 billion, Goodman Group around $1 billion, perhaps a bit more and the AMP, $450 million last week, up from the original $400 million.

The Commonwealth raised $2 billion to finance its purchase of BankWest, and it may shed more light on its capital position and earnings outlook at its AGM and profit update this afternoon.

Wesfarmers is looking to rollover some of the billions of short term debt taken on it its Coles takeover and analysts reckon the ANZ Bank and perhaps Westpac will come to the market in the not too distant future.

Peter Fray

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