Banks resort to "block" offerings Banks are taking on the risk of issuing shares on behalf of companies through "block" offerings as they seek to drive volume in equity capital markets with US initial public offerings stuck in the doldrums. Excluding Facebook's listing, just $12.3bn has been raised in US IPOs this year, less than half the amount raised by the same point in 2011, according to Dealogic, as stresses in the eurozone have dulled investor enthusiasm for new share issuance. Banks have responded by offering already-listed companies the chance to sell new shares without them having to take on market risk. In so-called "block share" offerings, banks purchase new shares from companies at a discount to the prevailing stock price, and take responsibility for selling those new shares into the market. So far this year, block offerings have accounted for 17 per cent of all equity capital market activity, according to Dealogic, the highest share since records began in 1995. The surge has been driven by the desire of private equity companies to cash in stakes in public companies without undergoing a prolonged investor roadshow. It has also been driven by volatility in equity markets, which has forced several companies to delay IPOs or secondary offerings of shares, after markets fell sharply in recent weeks. By issuing in blocks to banks, companies are guaranteed to sell shares. Last week, Kinder Morgan, the energy pipeline company, which is partly owned by Goldman Sachs and private equity groups Riverstone Holdings and Carlyle Group, sold shares worth more than $2bn in a deal exclusively underwritten by Barclays. That was the largest block share issuance underwritten by a single institution since 2003, according to Dealogic, and suggests banks" appetite to take on market risk may be increasing. Banks typically demand a discount of up to 10 per cent on the company's closing share price, and look to sell all shares before the market opens the next day. However, banks may be being forced to accept smaller discounts, as the market becomes more competitive. On the margin, pricing for blocks is incrementally more competitive this year than it has been the last two. That is partly a result of companies issuing shares bringing more banks to the table," said Brad Miller, global co-head of equity syndicate at Deutsche Bank. By pricing aggressively, banks risk being left with unsold shares. Citigroup and Morgan Stanley were both left holding shares after they failed to attract sufficient buyers for block offerings by European companies this year. Banks are not allowed to market block offerings to buyers before a company instructs them to sell shares. But banks do field inquiries from interested buyers, especially to purchase shares in companies that private equity groups are known to be planning to exit.