European industrial companies have raised limited capital this year even as COVID-19 disruption has boosted equity issuance elsewhere, but the pipeline of expected sector deals indicates that the trend could shift.

Industrials from sub-sectors such as chemicals, machinery and metal & steel raised a combined €2.71 billion via primary capital increases, excluding convertibles in the first nine months of 2020, or 5.4% of the value across all sectors. While this is up slightly year-on-year, it trails the surge in other business segments.

Europe saw a number of decent-sized industrials equity raises during the period, including a US$750 million share issue from steel giant ArcelorMittal, a €400 million accelerated bookbuild by chemicals firm IMCD and a £190 million placing by technical products provider Diploma.

While sectors such as healthcare, technology and consumer & retail have stormed ahead with their issuance, industrials may have seen too little pandemic impact to require much balance sheet repair and too limited cause for optimism to seek much growth funding.

Having said that, aircraft engine maker Rolls-Royce plans a £2 billion rights issue in coming weeks as it recapitalises in the wake of slumping flight traffic. The jumbo cash call will boost full-year issuance volumes for the European Industrials space and could herald a shift in broader sector activity.

Plans for potential issuance

As European companies reorient following the immediate COVID-19 hit, several industrials businesses have announced plans for potential equity issuance, both to see them through the current situation and to facilitate expansion.

Train maker Alstom, for example, plans a €2 billion rights issue to finance the takeover of Bombardier Transportation, while auto supplier Schaeffler has secured a mandate to issue stock worth around €1.1 billion before discounts to increase financial flexibility. Construction and infrastructure company Kier Group may also raise equity in coming months to boost its balance sheet.

The nature of upcoming industrials issuance will depend, in part, on the long-term impact of COVID-19 on different sub-sectors. Players in some segments will soon be ready for opportunistic growth and could use equity funding to expand their footprints. Others will suffer from COVID-19’s lingering economic impact and could resort to cash calls for repair. Either way, the pipeline of potential transactions suggests that overall sector activity could soon catch up.