Citigroup, Numis, HSBC Take Hit on Botched Kier Rights Offer

(Bloomberg) -- A group of securities firms have taken a hit on the botched rights offer of a U.K. construction company.

Citigroup Inc., Numis Corp., HSBC Holdings Plc, Banco Santander SA and Peel Hunt LLP have sold shares of Kier Group Plc at a discount after less than 38 percent of Kier shareholders subscribed to the offering, leaving the five banks holding a stake worth 115 million pounds ($146 million).

While volatility in global markets has made it harder for companies to find buyers in stock offerings -- and in Britain, Brexit is adding to the jitters -- Kier has company-specific concerns. It’s a debt-laden outsourcer for government contracts, similar to Carillion Plc, which failed earlier this year.

Citigroup, HSBC, Numis and Peel Hunt were each on the hook for 22.5 percent of the stake under the terms of the underwriting agreement with Kier, according to a person familiar with the deal, who didn’t want to be identified because the details are confidential. Santander underwrote the remaining 10 percent.

Numis Slides

Shares of Numis, a British firm whose smaller size leaves it more exposed to any losses than the big international banks involved in the sale, dropped 4.7 percent on Thursday, paring a decline of as much as 10 percent. All the banks declined to comment.

The five banks have disposed of all the 28.1 million shares they were left with, according to a filing from Peel Hunt, after selling the stock in the market at 360 pence -- the bottom of an earlier disclosed range. The new stock had originally been offered to existing Kier investors at 409 pence per share.

Numis and Peel Hunt took charge of selling the extra stock on Thursday. Altogether, the five banks are looking at a crystallized loss of about 13.8 million pounds, according to Bloomberg calculations. That doesn’t take account of any fees the banks charged.

The banks had had until Friday evening to find buyers for the remaining stock.

Kier shares slid as much as 13 percent Thursday while the stock was being absorbed by the market, but closed 0.8 percent higher at 385.80 pence. The shares have tumbled 63 percent this year.

Kier, which has worked on projects from the Channel Tunnel to London’s Crossrail, is receiving about 250 million pounds from the financing. It’s bolstering its finances three weeks after warning that it needed to shore up its balance sheet, cut debt and reassure customers as credit markets tighten and lenders lessen exposure to construction.

Such guaranteed fundraisings mean investment banks are occasionally forced to hold shares in their clients if they aren’t able to generate enough demand, taking on the risk of losses if the stock lingers below the purchase price. Partly in exchange for that risk, Kier’s advisers shared a fee of about 14 million pounds.

©2018 Bloomberg L.P.

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