Trafalgar secures pounds 204m from shareholders: Take-up of rights issue is expected to exceed 80%

THE pounds 204.5m rights issue by Trafalgar House looked to have been comfortably subscribed by yesterday's close with the take-up expected to be between 80 and 90per cent, writes Heather Connon.

Shares in the Ritz hotel to engineering conglomerate have stayed comfortably above the 60p rights price since the issue was launched last month, and they closed up 1p at 75.5p yesterday. The strength of the shares means most shareholders are likely to take up their entitlement, although the final result will not be announced until later today.

HongKong Land, the property arm of Jardine Matheson, had committed itself to take up the rights for its 20.1 per cent stake. But the success of the issue and the strength of Trafalgar's shares despite widespread concern about Trafalgar's high borrowings, its prospects and the scale of its property write-downs has surprised some observers.

After the issue, its debt will still be pounds 375.8m or 60 per cent of net assets. And it warned that it could have to write pounds 120m off its property portfolio in the year to September, on top of pounds 138m provisions last time. But the new shares will carry a dividend of 3.25p, giving a yield of 6.7 per cent more than 50 per cent above the market.

A high take-up of the issue raises questions about the put option written by Swiss Banking Corporation, under which it can force HongKong Land to buy up to 67 million shares, increasing its stake to 27.2 per cent by 3 May.

SBC had sub-underwritten about half the issue, but the success of the issue makes it unlikely that shares will be left with the underwriters.