Capital Raising

Will a capital raising add value or leave you seriously out of the money?

By Market Index
Fri 30 Sep 22, 5:14pm (AEDT)
Source: Unsplash

Key Points

  • Capital raisings can be bad for investors
  • Shareholder dilution can result from earnings being spread over a greater number of shares
  • Not all growth-by-acquisition strategies using borrowed capital were born equal

Capital raisings, which typically follow a trading halt are usually announced with the intention of deploying funds raised to grow a business.

However, there’s no guarantee that companies tapping retail or institutional investors (or both) will be any better off over the longer term, and the bankability of a capital raise doesn’t appear to increase along with the magnitude of funds being raised.

Over the short-term, shareholder dilution can simply result from earnings being spread over a greater number of shares.

That’s why shareholders who participate in capital raisings - typically done at a discount to the share price as an extra incentive – can be better off than those shareholders who don’t.

No level playing field

Admittedly, not all growth-by-acquisition strategies using borrowed capital are born equal.

But despite their relative merits, recent capital raisings to fund future growth, have in varying degrees, been caught up in the current down-trending market.

With that in mind, Market Index looked at handful of recent capital raisings that have left the poor old shareholder out of the money, regardless of whether they participated the capital raising or not.

Then we looked further afield.

Here’s a snapshot of how some recent capital raisings have fared so far:

16 September: Lithium explorer Anson Resources (ASX: ASN) share price shed -8% to $0.40 following a $50m capital raise to develop the company’s Paradox lithium project.

Since then the share price has continued falling to around $0.325.

13 September 2022: Clinical stage immuno-oncology company, Imugene (ASX: IMU) fell -4.4% to $0.215 following an $80m capital raise to develop anti-cancer drugs.

Since then the stock has lost further ground and is currently trading at around $0.185.

8 September: Toll road operator Atlas Arteria (ASX: AXL) share price has fallen from $7.48 to $6.23 after undergoing a near-$3.1bn capital raise to acquire a 66.67% stake in the Chicago Skyway.

8 September:  Shares in healthcare stock, Healthia (ASXL HLA) have gone nowhere since raising $15m to fund acquisition opportunities and provide additional financial flexibility.

What about capital raisings done earlier in the year or beyond?

Orica (ASX: ORI): Completed a $650m mixed placement at $16 in August, followed by a VWAP-priced $41m SPP at $15.29. Today the stock closed at $13.23.

Back in April Domain Holdings (ASX: DHG) used a 1-for12.33 entitlement offer at $3.80 to raise $180m needed to acquire Realbase.

Uptake on the retail offer was sub-10% and the stock closed today at $3.22, which leaves those who participated seriously out of pocket.

Back in March Carnarvon Petroleum (ASX: CVN) raised $70m at 30c, with no follow up SPP for retail investors. Today the share price closed at $0.155.

Back in December GUD Holdings (ASX: GUD) raised $405m which was spit between a fixed placement at $10.40 and a 1-for-3.46 non-renounceable at $10.40. The stock was trading at $7.41 at the close.

Back in August 2021 Evolution Mining (EVN) completed a $400m institutional placement at $3.85 to buy a $400m gold acquisition. The gold miner finished the day at $2.05.

Written By

Market Index

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