Whitbread secures £900 million rights issue to cover Covid-19 losses

WHITBREAD reassured the market today when it got a £1 billion rights issue away – mostly.

There was a 91% take-up of the discounted 1-for-2 fund raiser, one of many that corporate Britain is likely to undertake in the coming months.

The rights issue was underwritten by JP Morgan Cazenove and Morgan Stanley, which in theory leaves them on the hook for the other 9% of stock. Most likely, the banks will place the outstanding £90 million of shares in the market today, enjoy their fee, and go on the hunt for the next deal.

Whitbread, the owner of Premier Inn, needs the cash raised to cover income lost while its hotels and pubs are shut. The shares have rallied lately on hopes that lockdown restrictions will end sooner than previously thought. The stock dipped very slightly today, off 7p at 2646p, leaving the business valued at £5.35 billion.

The less than 100% take-up of the new shares is probably explained by Whitbread having a strong base of retail investors. Around 15% of the stock is held by small investors, often reluctant to take part in rights issues.

The wider mood in the City remains optimistic – we’ll leave aside whether it is also delusional. The FTSE 100 gained another 40 points to 6375 today, up over 400 points in a month.

Banks were on the up. Why? “Because they fell yesterday,” said one City insider failing to earn his keep.

Royal Bank of Scotland rose 3.1p to 134.5p, Lloyds was up 1p to 36.5p. Barclays, in court fending off Prince Andrew’s former girlfriend Amanda Staveley, gained 3p to 128p.

Staveley says Barclays owes her £1.5 billion. Barclays disagrees. The case continues.

Specialist lender Paragon was also rising, up 2p at 371p. That’s not bad given that today it reported a £27.7 million Covid-related charge and cancelled its interim dividend.

Ian Gordon, the bank guru at Investec, said in a note that Paragon looks solid.

He said: “For a low-risk specialist bank like Paragon, we have previously characterised the impact of this recession as a likely ‘dent’ to earnings. Today’s results suggest that it could be just a ‘nick’. Welcome news, which also offers a clear positive read to OneSavings Bank.”

OSB, one of Gordon’s favourites, rose 4p to 291p.