What kind of companies are raising capital?. This group is populated by companies who were verge of bankruptcy. The real estate sector has been the major beneficiary of this cheap money rush.
But on the business end, what are they exactly doing with the money. Basically repaying high cost debt. So there is a shift in the capital structure of companies from debt to equity.
If one analyses the performance of real estate sector, the performance of the companies has been propelled by the used of debt financing. In financial management parlance this is called Financial Leverage. This boosted their performance in good times and made them cash starved during the credit crises.
Now the sector is using the money to repay high cost debt. This will reduce their financial leverage. What it will also do is probably reduce the EPS for the shareholder. This is also because the new capital is not going to be invested in new projects but it is only going to restructure the capital structure of the company.
My guess is the dilution is going to be heavy and the sector would be an underperformer for the next 2 years minimum.
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