Old Mutual defends Nedcor price
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By Hilary Joffe and Nicola Jenvey
The 25% to 33% discount at which Nedcor's R5,15bn rights issue has been priced is in line with international trends and is aimed to deter hedge funds from sabotaging the issue, Nedcor parent Old Mutual said yesterday as criticism of the pricing mounted.
The R45 price, revealed on Friday after Nedcor said last month it would go to the market for R5bn to replenish its capital, was 25% below the R60.27 at which the Nedcor share closed on Thursday, which was down from R67 last month, before the group reported a R1.6bn net loss for the year to December.
SA's market has been used to rights issues at discounts of about 10% to the market price. And local analysts have accused the issue's underwriters Old Mutual, Deutsche Bank and Merrill Lynch of trying to pick up Nedcor shares on the cheap.
Regarding Capital Management, analyst Piet Viljoen believed that Old Mutual was "calling the shots".
Viljoen and Andisa Securities analyst Andrew Cuffe said it was in Old Mutual's interest to price the issue as low as possible so it could acquire a chunk of Nedcor shares inexpensively.
But Old Mutual CE Jim Sutcliffe said yesterday that the lower the price the less likely it was that the underwriters would be able to pick up shares. The price was designed to ensure investors subscribed for the issue. The biggest risk was that hedge funds would start to mess about with the issue, shorting the shares to create selling pressure in the market.
Internationally, issues were priced to deter the hedge funds "we looked at a list of 30 rights issues and found the average discount was 29%", Sutcliffe said.
Friday's announcement came after Nedcor's executives visited 141 investors in SA, the US and Europe, to explain what had gone wrong at Nedcor and how the new management team would fix it. Old Mutual holds 52% of Nedcor, with UK and US investors holding a further 15% to 20% and South African investors the rest.
Nedcor acting finance director Bob Head said that though the discount was larger than normal in the South African market, it reflected the volatility of markets as well as the sheer size of the issue, which would increase Nedcor's capital ratio from 10,1% to 11,3%.
Business Day
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