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Markets

Bankers call for 'hybrid' shares to plug COVID corporate capital gap

  • "Hybrid instruments are ideally suited to address these needs," it said.
Published January 19, 2021

LONDON: European companies hit by COVID-19 could issue "hybrid" shares to plug a predicted capital gap of up to 600 billion euros ($723.48 billion) when government relief measures expire as vaccination programmes are rolled out, a report said on Tuesday.

The report compiled by consultants PwC and the Association for Financial Markets in Europe (AFME), which represents banks and other market participants, said economic recovery is under threat unless the capital gap is bridged.

It proposes a new European-Union-wide hybrid security like preferred shares, a form of stock that has features of ordinary shares and bonds, typically offering a priority in dividend payments but with no voting rights.

"This is where hybrid and equity markets can play a key role in supporting Europe's recovery," AFME CEO Adam Farkas said in a statement.

Despite relief from governments and the private sector since the start of the pandemic, 10% of European companies have cash reserves to only last six months, the report said.

The EU has already passed a package of "quick fix" measures to make it more attractive for companies to rebuild their finances by issuing shares on the stock market rather than the more common route of taking on debt such as bank loans.

But many mid-sized and SME corporates do not want to give up control of their business by issuing ordinary shares, the report said, and are willing to pay a premium not to dilute their voting rights.

"Hybrid instruments are ideally suited to address these needs," it said.

Policymakers could also explore further use of dual class shares to address the control concerns of companies, as well as debt for equity swaps to reduce leverage, the report said.

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