The Collins family portfolio has just taken a nasty hit from what looked like one of the safest stocks in the list. National Grid, the nation’s wholesale electricity supplier, bludgeoned the market with a demand for £7 billion last week. The shares were poleaxed and, as the size and shape of the bruise became apparent, they have carried on down. The capital loss for shareholders is currently over a tenth, and the dividend has been cut (“rebased” is the euphemism) for good measure.
The sums are shocking. Shareholders are being offered seven new shares for every 24 held, at 645p each. Before the announcement, Grid shares cost £10.35. So a bargain, then? Hardly. At that price, 24 shares were worth £248. The seven new shares will cost £45, making £293. But Grid shares were 858p on Friday, making 31 worth £266. To add insult to injury, Barclays and JP Morgan are being paid £140m in fees to cover the ridiculously remote chance that the price will fall below 645p before the issue closes next week.
This is how the City of London gets its reputation for greed. Once upon a time, rights issues were pitched at a small discount to the market price, and the underwriters had to take a real risk that they would have to buy any unwanted shares. That concentrated their minds no end. They were typically paid a fee of 1.25 per cent for the deal, and they earned it. Nowadays, we have the spectacle of deeply discounted offers, such that much of the value is in the new shares, effectively eliminating the risk. The fees, as we can see, have turned into legalised robbery.
There was hardly a peep out of the financial press this time. The FT’s Lex column decided that the “dash for cash is in a good cause”, pointing to the vast capital spend needed in Britain’s stampede for renewable electricity and the chimera of net zero.
Nothing about whether this was a decent investment for a further £7bn of risk capital. It was four days before FT Alphaville got round to analysing the way shareholders had been short-circuited. We know the green transformation will make us poorer, even if no politician dares admit it. But Grid shareholders are being treated as forced contributors to some sort of national charity, without even the warm glow of doing good.
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