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Capital raising is a method through which a company raises funds intending to bolster growth and create wealth. There are three ways to raise capital for a business, namely, equity, debt and hybrid.
It is anticipated that there exists a correlation between capital raising and the stock price of a company. An entity providing a feasible plan that is likely to increase the profitability with the use of proceeds generated from the capital raised would create a positive sentiment in the market. This positive sentiment would be reflected in the upward movement of the stock price of that entity.
The three approaches to raising capital are shown in the following chart :
Interesting read: Capital Raising in Health Space-Diagnostic Company Genetic Signature Under Focus
Let’s look at four ASX-listed stocks that recently raised capital for their respective businesses.
An ASX-listed company, Graphex Mining Limited (ASX:GPX) owns and maintain the Chilalo Graphite Project situated in southeast Tanzania. The Chilalo project is host to a high-grade Ore Reserve and Mineral Resource.
Financing from a private investment firm:
On 25 February 2020, Graphex updated the market about the funding arrangements for the development of its Chilalo Graphite Project located in southeast Tanzania. The financier of this arrangement is a private investment firm, Castlelake L.P. which had signed an agreement with GPX announced on 29 October 2018.
Key components of the Funding Arrangements involved:
- Interim Loan Notes:
- Loan note subscription agreement to issue secured Interim Loan Notes for raising ~US$5 million
- Senior Funding Package: A term sheet to set the recommended terms for financier and other participants. Based on the terms, the financier would provide the following:
- US$40 million in equity
- Up to US$40 million from the issue of senior secured loan notes
The availability of Senior Funding Package is subject to due diligence, definitive transaction documentation and satisfaction of certain other conditions precedent.
The proceeds from the arrangement have been utilised in the development of the Chilalo Project.
GPX to raise ~$1.21 million via Share Placement and SPP:
On 06 March 2020, GPX notified the market that it had raised capital worth $0.96 million (before costs), entailing an additional placement of $0.16 million. The placement includes the issuance of 12.3 million shares and nearly 2.5 million additional shares at a placement price of $0.065 per share.
The placement includes commitments received from sophisticated and professional investors and also includes $50,000 of shares from the directors. However, the issues are subject to stakeholders’ approval at the Company’s next AGM.
The Company further mentioned that the proceeds would be used as funding for its Chilalo Graphite Project.
The price of $0.065 per share signifies an 18.75 per cent discount to the 5-day VWAP of $0.08 and a discount of 22.6 per cent to the last trading price of $0.084 (the closing price on 03 March 2020).
The lead manager for the placement was Bridge Street Capital Partners, and the issue of shares under the Placement is likely to happen on or about 12 March 2020.
On the same terms as the placement, a share purchase plan (SPP) was made available to all the existing eligible shareholders of the Company to raise a maximum of $250,000. SPP includes the issuance of 3,846,153 shares at $0.065 per share.
The Company may opt to scale back applications for the SPP at its discretion. The record date for GPX shareholders to apply for a maximum of $30,000 per shareholder is 5 March 2020.
Total Shares after the Placement (as well as additional placement) and SPP would be 119,626,939.
Stock Performance:
GPX stock was trading at $0.061 on 10 March 2020 (At 04:39 AEDT), increasing by 8.929 per cent compared to the previous day’s closing price. The stock has generated negative returns of 62.67 per cent and 69.73 per cent in the last three months and last six months, respectively.
SelfWealth Limited (ASX:SWF) is an Australian online broker providing a solution for investors to get access to the Australian stock market with a low-cost brokerage fee.
Trading Halt:
On 05 March 2020, ASX had halted the trading of the security as requested by SWF. halt pertained to finalising the arrangements for a potential capital raise.
Share Placement of $3 million:
On 09 March 2020, SWF had received commitments to raise $3,000,000 (before costs) via placement of 21,428,572 fully paid ordinary shares for $0.14 per share.
The placement includes commitments from both existing and new investors. The expected date for settlement of placement is scheduled on 13 March 2020. BW Equities Pty Ltd handled the placement.
The Company plans to use the funds generated from the placement in sustaining the pace of the steady growth of the business. For this, SWF would take new product initiatives, reinvest in customer acquisition and continue its technology investment.
Stock Performance:
SWF stock was trading at $0.135 on 10 March 2020 (At 04:39 AEDT), in line with the previous day’s closing price. The stock has generated negative returns of 18.18 per cent and 22.86 per cent in the last three months and last six months, respectively.
An ASX-listed company, Security Matters Limited (ASX:SMX) is engaged in the commercialisation of its patented technology that applies a hidden chemical-based ‘barcode’.
Share Placement to raise $5 million:
On 05 March 2020, SMX announced the completion of placement to raise $5 million with the issue of 14.7 million fully paid ordinary shares at $0.34 per share. The offer involved both existing shareholders and a wide range of sophisticated and new institutional investors. The raised funds would be used to extend the support in the growth strategy of the Company.
Out of 14.7 million shares, 3.8 and 10.96 fully paid ordinary shares are listed under the Company’s Listing Rule 7.1 placement capacity and the Company’s Listing Rule 7.1A placement capacity, respectively.
Security Matters also issued a 1 for 3 attaching option with a 3-year expiry. The option can be exercised at $0.60.
Stock Performance:
SMX stock was trading at $0.350 on 10 March 2020 (At 04:39 AEDT), in line with the previous day’s closing price. The stock has generated negative returns of 7.89 per cent in the last three months as well as the last six months, respectively.
Enterprise Metals Limited (ASX:ENT) is an Australia based entity involved in the exploration of gold and base metals.
Placement of Entitlements to raise $310,500:
On 04 March 2020, ENT notified the market that it had accepted subscriptions for 15,525,000 attaching Options and an additional 31,050,000 shares. The quotation of these shortfall shares and the issue of attaching Options is scheduled to take place on 09 March 2020.
The placement was done under the provisions of section 4.12 (Shortfall Offer) of the pro-rata Entitlements Issue Prospectus dated 6 November 2019 and closed on 17 December 2019.
- The Entitlements Offer had a purpose of raising a maximum of $501,766 for working capital, exploration and expenses of the offer.
- Shareholders subscribed for a total of 5,703,102 free attaching Options and 11,406,204 shares which totals to $114,062.
- Under this Shortfall, placement to raise $310,500, totals amount raised to $424,562.
- Ultimately, a shortage of $77,204 remains open until 16 March 2020.
Section 4.12 of the Prospectus gave ENT the right to place within three months following the closing date. Also, any Shortfall Shares not taken up by Eligible Shareholders (with attaching Options) at the same price as the Entitlement ($0.01).
Stock performance:
- On the date of release of notification for placement, the stock dipped 11.11 per cent from its previous close.
- On 10 March 2020, ENT’s stock was trading at $0.009 (04:39 PM AEDT), an increase of 12.5 per cent compared to its previous close.
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