Radio shares hammered: SMG’s rights issue underwater

Worried about the share prices of newspaper groups? A quick look at the radio sector might make you feel slightly better.

On Friday, shares in GCap Media, the company that owns Capital and Classic FM, fell to their lowest level (FT — sub. reqd.) since the company was formed in May 2005 via the merger of GWR and Capital.

The culprit? UBS, which says it is worried about the effects of a consumer spending slowdown. GCap’s shares are down 40% since August.

The market’s lack of confidence in radio is bad news for SMG Media. The company that owns Virgin Radio is trying to raise £95m from investors via a rights issue.

Rights issues give existing investors the opportunity to buy newly-issued shares in a company at a discounted price. When the company announced its fund-raising drive a month ago, it priced the new shares at 15p. At the time, that represented an attractive discount to the topline price of 26.5p.

The problem for SMG is that its rights issue is now underwater (sub. reqd.) With the company’s shares trading at a record low of 12.5p, there’s no incentive for investors to buy new shares at 15p.

Under such circumstances, the banks who have agreed to underwrite a rights issue typically buy any shares that investors won’t touch.

SMG will get its £95m; but its bankers, Hoare Govett, seem set to swallow a whole lot of pain when the issue closes on 18 December.