HBOS gets 8 pct take-up for $8 bln rights issue

Investors in Britain's biggest home lender HBOS subscribed for just 8.3% of shares in its 4 bln pound ($8 bln) rights issue, leaving underwriters to try to sell almost 3.8 bln pounds of stock.
HBOS, the latest UK bank to raise capital to repair its balance sheet and brace for a tough UK economic outlook, said on Monday that shareholders subscribed to buy 124 mln shares in the rights issue. This left underwriters Morgan Stanley and Dresdner Kleinwort with 1.375 bln shares.
HBOS offered its shares at 275 pence each in the issue, but its share price fell below that level in the days before the offer deadline. They rallied to close on Friday at 282p.
The shares fell 5% to 268p in early trading as dealers said the prospect of such a big stock sale could overhang the shares for some time.
A poor take-up of less than a quarter had been expected after a collapse in HBOS shares in recent months — the offer had been priced at a 45% discount when announced on April 29 — and concerns about UK bank prospects as the housing market slows and the economy falters.
Morgan Stanley and Dresdner are expected to have sub-underwritten much of the issue, hedged much of their remaining exposure and lined up institutional investors to mop up stock at a discount.
The extent to which they have long-term buyers lined up could dictate how the stock overhang affects its share price, analysts said.
"What it comes down to is how much was underwritten by people who genuinely want to own the shares, in which case that stock won't overhang the market, and how much is left with those who don't want to own the shares, the prime underwriters," said James Hamilton, analyst at Numis Securities.
Many hedge funds and other speculators also sold the shares short in anticipation of buying it back now, so they will also absorb stock.
"There were a large number of hedge funds who shorted the stock with the intention of buying it back off the underwriters at a discount and it looks like they're going to get their way," Hamilton said.
Morgan Stanley and Dresdner have until 1530 GMT on Tuesday to sell the stock at above 275p, after which they are on the hook to buy any unsold stock for themselves.
"The rights issue was conducted in the middle of a fierce financial storm, we saw unprecedented volatility in bank stocks," a spokesman for HBOS said.
"The bottom line from an HBOS perspective is we've raised 4 bln pounds of capital, which means we will now be one of the most strongly capitalized banks. That's where we want to be at a time when the economic outlook is darkening," he added.
HBOS expects the fundraising to lift its core tier 1 capital to the "upper end" of its targeted 6-7% range by the end of this year, above most European peers.