A surge in corporate equity issuance is expected in coming months, as liquidity dries up in the debt markets.

The rush to the equity capital markets comes as banks start turning off the taps in loan markets across Europe. In addition, opportunities to raise funding in the bond markets remain uncertain with ongoing market volatility.

“It is a realistic prospect that there will be significant equity issuance for balance sheet fortification and M&A in the coming months,” said Timothy Harvey-Samuel, head of equity capital markets at Citigroup in London.

“However, one has to be pragmatic and innovative given the volatility of market conditions. Full recovery will require more visibility on market and economic stability and when earnings will trough,” he added.

Telecom Italia, Debenhams, PPR, Logica and William Hill are among the companies at higher risk of needing to raise capital, assuming a recession, according to analysts at Société Générale.

The retailing, leisure and technology, media and telecoms sectors could see a flurry of capital raising in coming months, according to SocGen.

The car industry is facing the most bonds coming due for repayment, some €27.7bn ($35bn) over the next two years, according to the report.

“There will be an increase in equity issuance as companies look to reduce pressure from their debt, but it is more likely to come from companies that have choices in funding sources rather than companies that have already seen their stock hammered by concerns about their debt,” said Neill Thomas, head of debt advisory at KPMG.

UK betting group William Hill said its £1bn ($1.5bn) of borrowing facilities had over 15 months to run until maturity and it was preparing to refinance these “in due course with the benefit of …continuing strong operating performance”.

French retailer PPR said in its third quarter results that it did not require refinancing before the end of fiscal year 2008 and all 2009 maturities were largely covered by unused confirmed credit lines, which amounted to €4.4bn as of June 30, 2008, or more than twice all net refinancing requirements for fiscal year 2009. In addition, PPR continues to issue commercial paper, and no material repayments due in the fiscal year 2010.

Debenhams and Logica declined to comment. Telecom Italia said a capital increase was not on the agenda.

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