DEALTALK-Gas Natural's deal bodes well for other rights issue

(for more Reuters Dealtalks click on [DEALTALK/]

* Sends strong signal for upcoming 8 bln euros Enel deal

* Investors will support M&A "with the right story to tell"

* UBS expects ECM volume to reach 150 billion euros

By Daisy Ku and Raji Menon

LONDON, April 1 (Reuters) - Gas Natural's (GAS.MC) 3.5 billion euros rights issue was fully subscribed late on Tuesday, as investors signalled that they were still willing to back mergers and acquisitions (M&A) for the right companies.

Gas Natural indicated previously that it would use the $4.66 billion proceeds to shore up its balance sheet after it bought Union Fenosa UNF.MC, Spain's third largest electricity company, for 16.7 billion euros.

Global dealmaking plunged by a third in the first quarter as the financial crisis thwarted corporate expansion plans, but bankers say that other capital raisings linked to M&A will be well received.

"This deal shows shareholders are willing to support M&A if you have the right story to tell," said a London-based equity capital markets banker.

Bankers said Gas Natural should bode well for Italian power company Enel's upcoming 8 billion euro deal because utility companies are a defensive play against the economic downturn.

"So far, no big (equities capital markets) deals have been in trouble," another London-based banker said.

Enel asked its shareholders to back a plan to issue up to 8 billion euros worth of stock later this year to shore up its balance sheet after buying 92 percent of Spanish utility Endesa (ELE.MC).

Endesa has planned capital expenditure of 13.5 billion euros through to 2013.

BALANCE SHEET REPAIR

Market observers expect activity in the equities capital markets to be driven by balance sheet restructuring for the rest of the year. Companies in sectors heavily affected by the recession, like financial services, construction and retail, will be most in need of extra cash.

"They all need fresh money," a London-based banker said.

Jane Coffey, head of equities at Royal London Asset Management, said companies with reasonable business models and short-term liquidity problems were likely to gain investor support.

Companies in vulnerable sectors that come to market after most of their peers may struggle to raise funds because investment managers can only deploy a certain amount of capital to each industry.

"Problems will arise in sectors where, say, all the companies need rights issues," added Coffey.

"Investors also fear that, like some of the banks, companies may not raise enough money first time round and will have to come back to the market again," she added.

UBS analysts say that investors will discriminate against companies with operational problems.

New equity issuance has totalled 52 billion euros so far this year, according to UBS, which expects a further 100 billion euros to be raised in 2009. In a bull year like 2007, bankers say they would expect deals to be worth 200 to 250 billion euros, driven by initial public offerings.

Gas Natural's deal, handled by Barclays (BARC.L),BNP Paribas (BNPP.PA), Citi (C.N), Santander (SAN.MC), Societe Generale (SOGN.PA), UBS (UBSN.VX), ING and Spanish savings bank La Caixa, lowered the company's net debt to earnings before interest, depreciation and amortization (EBITDA) to below 3.5 times from about 4 times.

The issue price of 7.82 euros each values the company at 4.3 times enterprise value to EBITDA, compared with the sector average of 6.4 times. (Editing by Victoria Howley; Editing by David Cowell)