Babcock catches short-sellers on the hop with rights issue that never was

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Babcock International Group PLC (LON:BAB) caught the market on the hop this morning with its dramatic plans to avoid an equity issue at all costs.

The company, a specialist in submarine equipment and the Ministry of Defence’s second-largest contractor, announced job cuts, £2.7b of non cash writedowns and lowered profits guidance but still the share price rocketed (if you will forgive the phrase), with the company’s market value now a third-higher than it was last night.

If the above was the bad news – although the stock market’s interpretation of job cuts is somewhat different to the views of the staff being laid off – then the good news was that the company is committed to avoiding a rights issue that would almost certainly have been at a heavy discount to the prevailing share price.

Instead of tapping the market, the company has opted to sell off the family silver.

According to the web site shorttracker.co.uk, around 2.4% of the company’s shares are out on loan to “short sellers” – speculators who borrow shares from investment institutions and sell the shares in the expectation that they will be able to buy them back cheaper later on.

The company has been in the sights of short-sellers for some time now.

READ Babcock forced to refute further claims from shadowy short-seller Boatman Capital

About two years ago, Boatman Capital Research set about Babcock, accusing the company of overestimating Defence Support Group subsidiary’s biggest contract by as much as £75mln.

It has also called on bosses to simplify the company’s “unnecessarily complex” structure and ditch the “accounting tricks and obfuscations” which, it says, contributes to a “distrust” of its finances.

Babcock’s management of the time refuted the allegations, following the Mandy Rice-Davies principle but now Babcock, under new management, appears to have admitted that most of Boatman Capital Research’s accusations were on the money.

 

 

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