Running a business requires huge capital. From a financial capital economics point of view, capital is an important component to keep a business going and fund future projects. A company’s capital structure comprises of debt capital, equity capital, and working capital. When a company plans growth or expansion or purchase of any asset, and lacks enough funds to meet the requirement, it opts for capital raising.
Types of Capital Raising:
Top two ways through which the companies raise capital are
Under debt capital, also known as debt financing, companies secure funding through borrowings and pay back the amount at a later date at a certain interest rate which is recorded in the balance sheet. One of the best examples of debt financing is bank loans. The other approach companies follow for debt financing is through the issue of corporate bonds to investors, who are also referred to as lenders or bondholders. Before the bond matures, it is the responsibility of the company to issue interest payments to the bondholders.
Equity capital raising involves the sale of the company’s shares, which could either be common shares, or preferred shares. In equity capital, companies don’t need to repay shareholder investment; however, each shareholder owns a small portion of the business.
Raising Funds in Australia:
In Australia, both private and public companies can raise funds.
Private Companies: Companies with less than 50 non-employee shareholders can raise funds from their existing shareholders, employees or a subsidiary. They can also raise capital from the public, where there is no need for a disclosure document.
Public Companies: Companies with more than 50 non-employee shareholders are known as public companies, and they can raise capital by issuing securities to the general public.
In this article, we are discussing two ASX listed popular stocks - Westpac Banking Corporation and Charter Hall Long WALE REIT, which recently completed capital raising programs.
Westpac Banking Corporation (ASX: WBC)
On 5 November 2019, Westpac Banking Corporation (ASX: WBC), a leading provider of banking, financial and related services in Australia, announced the completion of a $2 billion institutional share placement (fully underwritten), part of a capital raising worth ~ $2.5 billion unveiled by WBC on 4 November 2019. The capital raising program also includes a non-underwritten share purchase plan (SPP) targeted to raise ~ $500 million.
Under the placement, the company will issue around 79 million new fully paid ordinary shares in Westpac at $25.32 per share. The company allocated all new shares to sophisticated and institutional investors in the placement bookbuild.
The new shares issued as part of the placement are expected to settle on 7 November 2019 and would commence trading from 8 November 2019. The shares issued will not be entitled for the 2019 final dividend of 80 cents per share and trade under a separate code ‘WBCNB’ until 11 November 2019. From 12 November 2019, these shares will trade under the code WBC.
WBC is likely to send an SPP booklet to eligible shareholders with further details on the SPP on or around 12 November 2019.
The capital raised would provide the company with an increased buffer above the Australian Prudential Regulation Authority’s (APRA) “unquestionably strong” CET1 capital ratio benchmark of 10.5%. Additionally, the capital raising creates flexibility for changes in capital rules and for potential litigation or regulatory action.
The stock of WBC has given a YTD return of 11.32%. On 7 November 2019 (AEST 12:45 PM), the WBC stock was trading at $27.510 per share, up 0.954% from its previous closing price. WBC has a market cap of $97.25 billion and approximately 3.57 billion outstanding shares. The annual dividend yield of the stock is 6.39%, while PE ratio stands at 13.870x.
Charter Hall Long WALE REIT (ASX: CLW)
Charter Hall WALE Limited as responsible entity of Charter Hall Long WALE REIT (ASX: CLW), which is an Australian Real Estate Investment Trust (REIT), on 5 November 2019, updated the market with successful completion of a placement and an institutional entitlement offer. The company raised $120 million through the institutional placement and $87 million through institutional entitlement offer or the institutional component of the 1-for-17 accelerated non-renounceable entitlement offer.
The placement received huge demand from both new and existing institutional investors. Under the placement, the company will issue securities at a price of $5.50 per security. These securities are due to settle on 15 November 2019, while allotment and normal trading will start on 18 November 2019.
The institutional entitlement offer also received good support from the existing shareholders with ~ 99.7% take-up by qualified institutional security holders. The shortfall under the institutional entitlement offer also registered robust demand from new and existing security holders. Under this offer, the company will issue ~ 15.8 million securities, and the settlement, allotment and normal trading dates will be the same as for the placement.
Additionally, the retail component of the offer is scheduled to open on 8 November 2019, raising ~ $35 million. The retail entitlement offer will close on 19 November 2019 at 5:00 pm (AEDT). The company will invite eligible shareholders with securities in the REIT as at 7:00 pm (AEDT) on 6 November 2019 and a registered address either in Australia or New Zealand for participation in the Retail Entitlement Offer at the Issue Price.
The total equity raising of ~ $242 million would support the company in partial funding of the acquisition of interests in two A-grade office buildings located in Melbourne and Macquarie Park, Sydney and a Bunnings warehouse site in Darwin. The proceeds raised would also support in funding associated transaction costs.
The total property valuation of the acquisitions is $331.5 million. The remaining funds required for the acquisitions will be sourced from a combination of existing debt facilities of the company, a new $100 million debt facility with an international lender and debt facility secured at the 242 Exhibition Street wholesale partnership level.
The stock of CLW has given a decent YTD return of 35.73%. On 7 November 2019 (AEST 12:47 PM), the stock of CLW was trading at $5.550. CLW has a market cap of $2.09 billion and approximately 376.62 million outstanding shares. Its PE ratio stands at 20.990x.
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