Raising the stakes

Australian investors are starting to get their appetites back. Since the start of 2009, investors have handed Australia’s listed companies more than $20 billion in order to pay down debt, strengthen their balance sheets and stock up on cash to get through this downturn.

The whole process has been so easy, and investors seem so willing to stump up cash, that some companies – most notably BlueScope Steel and some of the banks – have raised capital more than once.

And why not – best to cash in while investors are in a generous mood and while global financial markets have returned to something vaguely like stability.

So far most of the action has been at the top of the market, among the ASX’s top 50 companies. But that is about to change as small and mid cap companies try to get in on the act.

The timing of this mini market rally could not have been better for small and mid caps, particularly those that are carrying a bit of debt. The banks, stung by steadily increasing defaults by small and medium borrowers, aren’t keen to lend money to businesses right now, and are even tightening the screws on good businesses by raising their interest rates.

One of the first mid caps to move was Pacific Brands. (Yes, this is a mid cap now – it might employ thousands of people and earn billions in revenue each year, but its market capitalisation stands at just $387 million, putting it firmly in the mid cap category). It plans to raise $256 million in fresh capital in the coming weeks in order to pay down debt and fund its turnaround program.

Analysts expect to see more small and medium-sized companies going to the market in the coming months – providing, of course, equity markets don’t turn bearish.

Entrepreneurs often wrestle with the idea of listing their company on the stock exchange. It can be daunting and expensive process that involves revealing details to the public that entrepreneurs would rather keep under wraps.

But the ability to access capital can sometimes make it all worth it. Particularly when the banks, the angel investors, the private equity players and the venture capitalists are refusing to let go of the cash.