Fleming warns of share cash famine

THE Government's growing financial deficit could lead to a worsening cash famine in equity markets during 1993, which will limit the ability of companies to reduce their debts by issuing shares, according to Robert Fleming, the merchant bank, writes Terence Wilkinson.

In its annual review of corporate finance, Fleming says that after a record year in 1991 the availability of new capital all but dried up in 1992 as investment was deferred.

The pounds 4bn raised through rights issues of new shares was only 40 per cent of the 1991 level. Only 20-25 per cent of the money raised was used to repair balance sheets, with mergers and acquisitions accounting for most of the balance.

With several market sectors now valued on high multiples of earnings as investors anticipate recovery, the stage is set for companies to attempt substantial cash- raising during the first quarter.

The Treasury has forecast a rise in the public sector borrowing requirement from pounds 37m this year to pounds 44m in 1993-4. The Government may therefore have to sell gilt- edged stock next year at the rate of almost pounds 1bn a week, which analysts fear will outstrip the net inflow of funds into institutions.