City broker: don't rule out a Wetherspoons rights issue

Investors should not rule out the possibility of managed pub operator JD Wetherspoon launching a rights issue in the near future, according to a City broker.

Hugh-Guy Lorriman of Seymour Pierce said that although Wetherspoons appeared to be a "lowly indebted company", the renewal of a £415m debt facility at the end of this year was the "biggest risk over the [group's] story in the short term".

Lorriman says eight of the 10 banks supporting the debt facility are from overseas, a situation that might lead to issues if some or all of them wish to withdraw from the UK market in the current climate.

"This shows how the renegotiation of the facility is a complex matter and a significant test for the Wetherspoon finance team," he said, noting that the company had "pointedly refused to rule out a rights issue, preferring to keep its options open".

Lorriman said that as well as raising funds to cushion its debt a rights issue could also raise cash to grow the business or enable the group to return to dividend payments "earlier than expected".

And while Wetherspoon founder and majority shareholder Tim Martin would be unlikely to want to raise the cash to take part in such a move, "considering the recent success of the trading of the business through the downturn, [he] may consider that the business model is reinvigorated and that now is the right moment to inject capital for the next stage of significant growth".

The company, which is to update the market on recent trading next Wednesday (January 20), was unavailable for comment.