Debt-laden firms to ask for £10bn

CASH-strapped companies are likely to go begging to shareholders for a record £10 billion in the next few months to repair their battered balance sheets.

Analysts say the expected flood of rescue rights issues will be taken up by most investors - at a price.

The head of equity capital markets at a leading investment bank said: 'Most companies should be able to convince shareholders to take up an issue, but only at a hefty discount.'

The candidate most likely to bring out the begging bowl is British Airways, despite regular denials that it is considering raising cash this way. The airline, which is cutting 13,000 jobs and scrapping routes, is weighed down by a £6.5 billion debt mountain - more than three times its stock market value.

Analysts reckon the most likely way to put BA's finances back on an even keel is to raise £1 billion from shareholders with an offer pitched well below the present share price.

Another company said to be plotting a rights issues is Kingfisher, which wants to buy out the rest of its French DIY subsidiary, Castorama. Chief executive Sir Geoff Mulcahy is thought to be keen, but disgruntled investors who have been unhappy for years with Kingfisher's performance may demand his removal before they agree to back the plan.

The biggest rights issue so far this year is at ICI, which is raising more than £800 million to repay debts from an ill-timed acquisitions spree.

ICI is worth £2.4 billion, but its shares have lost a third of their value in the past 12 months as the debt pile has grown. It was followed last week by Enodis, the former owner of kitchen manufacturer Magnet. It is planning a £72 million rights issue to pay back debts. Many businesses borrowed with abandon as they rapidly expanded in the boom years, often paying well over the odds for acquisitions. This left them burdened with huge interest payments on their borrowings.

Some, like BA under chief executive Rod Eddington, have had their credit ratings downgraded, driving up the cost of servicing debts still further.

Not all companies are going down the rights issue route to refinance their businesses. Beleaguered engineer Invensys last week sold some of its businesses to raise cash.

But having to sell assets is a risky way to raise money, analysts point out. And even if a rights issue is the only way, there is no guarantee that shareholders will dip into their pockets.

Telecoms group Energis is teetering on the brink of collapse this weekend after National Grid, its biggest shareholder, decided not to pump any more money into it.