Back in March, investors drinking in the Punch Taverns last chance saloon stared disconsolately into their glasses and saw them half-empty. Or, more accurately, they saw them completely empty, apart from a bit of foam at the bottom.

Three months later, investors’ view of the world has changed completely and the glasses look temptingly full.

Punch’s business has changed very little. Trading remains tough and it has £4.2 billion of debt to work its way through. But shareholders who three months ago focused on the risk that the sliver of equity on which the debt was balanced would be wiped out, are now looking at it as a geared play on the consumer recovery.

The response to Punch’s placing of new shares shows how far City institutions have regained their thirst for equity risk.

Although share prices in highly indebted companies such as Punch have soared, their debt is still trading way below face value. So there is a nice trade to be done by issuing new shares and using the proceeds to buy back debt. That was the reasoning behind Greene King’s recent rights issue, which also gave it the funds to pick up more pubs, such as those it bought from Punch last week. Rather than go for a rights issue, Punch has opted for a placing with clawback — similar to the recent Debenhams issue — which provides no compensation for heavy dilution to shareholders who do not put in more money.

There is a good reason for it, however. The Punch issue was hefty — doubling its market value — and a large chunk of its shares are held by American hedge funds that would not take up a rights issue. The placing, allowed Goldman Sachs and Merrill Lynch to bring in a number of UK institutions as new investors. The losers will be private investors (as usual) but luckily Punch has few.

The funds will allow Punch to pay back convertible bonds due next year, leaving “just” the very long-term securitised bondholders.

Rivals, such as Enterprise Inns, that need to refinance debt will be under pressure to follow suit. And to do so soon, while investors still have a thirst.

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