Their debt position is such that it will be almost impossible for them to resist the opportunity.
This poses a dilemma for the traditional long-only fund managers — those of them who are still left — in knowing what to do.
If they have been safely out of the sector, is it time to go back in? Should they take the analysts’ tips and buy now? Or should they wait in anticipation of the rights issue, which will inevitably be at a deep discount to whatever is the share price at that time and buy all they would require then, for much less money?
If, on the other hand, they are existing shareholders, they have to make sure they have the cash on standby to take up any such rights in full — because otherwise they risk being severely diluted.
But fund managers do not normally like having cash lying around for what is an unspecified period because in a rising market, it means they underperform. Tough choices await.
It is much easier if you are a hedge fund because then, even if you believe things are on the mend, you can simply short the stock and close the position cheaply later on by participating when the deeply discounted rights issue comes along.
This is pretty well what they did when the property sector needed extensive recapitalising after the financial crash in 2008. Some did very well out of it.
The other message from the property sector is that finance directors like to move in herds — which is a great plus if, for whatever reason, the fund manager finds he has been made an insider and is therefore barred from dealing in the stock for the duration.
This means that once one company launches a rights issue, all the other ones feel they also have to recapitalise or risk being left behind — and even if they don’t think that of their own accord, their investment bank will surely suggest it.
So even if you are barred from dealing in one stock, the trick is to short all the others in the sector on the basis that the market will assume that companies are like penguins — once one has jumped into the water and not been eaten, the others will surely follow.
There is an interesting debate to be had on whether shorting in this way might possibly be considered insider dealing.
However, capitalising on sector-wide movements on the back of a corporate action in one stock has a long tradition.
Indeed, the technique was pioneered way back in the early Nineties when one of the leading dealmakers of the day, Swiss Bank’s Brian Keelan, used contracts for differences in the derivatives market to buy a bull position in the rest of the electricity-generating sector just before his client, Trafalgar House, launched a bid for Northern Electric.
The rest of the sector duly rose in anticipation of further bids, furnishing his client with a perfectly legal and very juicy profit for remarkably little outlay.
Shorting in anticipation of rights issues looks like the same technique in reverse, but the Keelan move created a stir even then, and attitudes have hardened in the past 25 years.
In addition, there is obviously a public interest in how major share price movements affect the cost of capital.
Thus it will be interesting to see if the flow of rights issues materialises as expected, how the modern army of regulators, compliance officers and securities lawyers cope with the actuality of modern-day market speculation. It promises to be something of a challenge.
