Too much share capital required?

Companies listed on the Athens Exchange (ATHEX) are planning to raise a mammoth total of -7.5 billion in cash through share capital increases this year. The stock market euphoria of the last four years and the entry of foreign portfolios into companies with capitalizations of more than -300 million has brought about a marked change in the philosophy behind share capital increases in cash. Company owners and main shareholders now feel more secure with the presence of foreign institutionals, who are eager to put up as much capital as they need for further growth, in exchange for a large stake in the share capital. Just six or seven years ago, most companies announcing share capital increases had to live in doubt and anxiety as to whether investors would participate or exercise their rights. And in cases where the issue was undersubscribed, the basic shareholder had to dig deep into his pocket to make up the difference. There are fears that the more money is raised for share capital increases, the weaker the stock market becomes. But such fears were not substantiated last year, for instance, when National Bank raised -3 billion for the buyout of Turkey’s Finansbank. In such cases, too, there is now a qualitative difference which acts as a safety valve. In the last two years or so, foreign investors have kept up a brisk business in Greek shares, helping to maintain turnover at high levels. In just the first five months of 2007, a total of -4.1 billion has flowed in, compared to -5.5 billion for 2006 as a whole. Marfin Investment Group was reported last week to have almost completed its -5.2 billion share capital increase, estimated to be the fifth-largest worldwide this year. It will be followed by the Alapis chemicals group (the result of a recent merger between Veterin and Lamda Detergent) with -817 million and EFG Eurobank, with -1.2 billion. Alapis’s main shareholder, 35-year-old Lavrentis Lavertiadis, is aiming high, aspiring to make the group a European leader in the sector, starting with buyouts in Bulgaria and Romania. EFG Eurobank, Greece’s third-largest bank, intends to use the proceeds of the rights issue to speed up the growth of a strong group in New Europe. ‘Excessive’ Constantinos Vergos, president of the Greek Association of Certified Analysts, argues that share capital increases that enable firms to raise investment capital may be at the heart of the stock market institution, but the market’s potential in meeting such requirements is not unlimited. «Excessive capital increases have adverse repercussions on the liquidity of the system and on the shares market in the medium term, but also in the long term, if they are not directed toward successful investments,» he writes in Kathimerini. «In general, a favorable stock market climate is considered an opportunity by the basic shareholders to make decisions on share capital increases… The ones that will take place in 2007 are expected to have a somewhat negative effect on share values as of the middle of the year, as they exceed the Greek market’s average potential for raising capital. In this sense, if this trend continues or intensifies in the next six months, there will be similarities with the 1999-2000 period, when it is thought that the market fell sharply because liquidity «weakened.» «However… then we had 20-25 share capital increases by public subscription every six months, and fewer now (less than 15).»

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