The cash-starved watch Australand

BRADKEN has put its issue to bed. Australand has just moved. Who's next? Speculation swirls around Incitec, Asciano, Gunns, Leighton, AWB and a slew of real estate trusts. The banks can muddle through with their DRPs and hybrid issues till next year.

The brutal reality for many companies, though, is that they are increasingly desperate for fresh capital. What happens if the price of debt funding does not fall and economic conditions deteriorate further?

Dozens of boards are grappling with the same dilemma. Do we bite the bullet now, dilute our earnings and even risk the embarrassment of failure just to put some cash in the tin? Or do we hold off and wait for our stock to recover and for market conditions to stabilise, then press the button?

The timing is crucial. The glimmer of hope seeded by last week's sharp bounce in the market almost brought on a rash of equity raisings. Alas, the correction did not last.

The cost of debt funding is still rising, as is the cost of equity. As share prices tumble, it becomes prohibitive to tap shareholders. But some have no choice. And so it is that Australand has put the hat around at a huge discount. The stock was suspended at 97.5 and is doing a rights issue to raise $560 million at just 60.

All eyes are on Australand, particularly in the bombed-out REIT (real estate investment trust) area. Its issue is pitched at a whopping discount to net tangible assets. Existing shareholders are getting stitched up; it looks desperate. The alternative, though - selling assets - must have been even less inviting.

Like many of its counterparts, Australand has a commercial paper issue due to roll next year. Should this issue fail, the developer could kill the secondary capital market for other property players.

Several REITS, particularly the Macquarie stable (and more particularly Macquarie DDT, which looks like losing an anchor tenant in the US) would dearly love to raise equity and deleverage. Rumours of an impending issue from Goodman Group and, a bit further out, GPT, are also doing the rounds.

All prospective issuers will dearly hope Australand does not get slaughtered. One factor that may help it is its 54% Singaporean shareholder, CapitaLand. CapitaLand is underwriting the issue and could move to a 70% stake if the shortfall is big enough.

Unlike the embattled property players, there is equity at hand for the right company with the right idea. Survival capital might not be selling well but the market will still fund growth, as evinced by engineering group Bradken's successful $110 million placement to institutions to fund the rest of its AmeriCast acquisition. Scale-backs were up to 90%.

In contrast, Orica did the market no favours. It may have scraped its $600 million issue over the line but the stock was soon sold down heavily as disgruntled institutions muttered about management running out to buy things then putting a gun to shareholders' heads to fund them. In the resources area, gold stock St Barbara's recent travails trying to dig up interest for its capital raising has not helped sentiment.

Against this back, then, who are the candidates for capital raisings? Rumours are about that Leighton may put its hand up, hence a three-day, 13% slide in the stock. Incitec is believed to have a raising on the boil but apparently got spooked and decided to wait. No raising is now the official line. Tasmanian logger Gunns needs to hit the market. Even though it doesn't yet have the debt funding teed up for its pulp mill, it could do with some cash to fund its mop-up of South Australian timber company Auspine.

Then there's AWB. Things are getting tight and, once the single desk wheat monopoly goes, AWB will need to front-load its capital requirements, if you like. It will need to buy the wheat itself rather than manage the pool.