ASX: Surviving COVID-19 Crash

  • Apr 15, 2020 AEST
  • Team Kalkine
ASX: Surviving COVID-19 Crash

Coronavirus has rocked the daily lives of households as well as capital markets. Investor community has been asking many questions lately, including the potential implications of the virus on businesses.

Markets have witnessed one of the steepest falls ever as a result of COVID-19 crisis, thereby making investors poorer by far. Companies had halted operations for an indefinite time as policymakers imposed lockdowns to curb the spread of the virus, however, essential services businesses are operating.  

A precipitate dent to cash flows has wrecked the investor confidence on businesses and respective future outlook. At the same time, the collapse in the oil-production negotiations took a sharp U-turn when Russia backed off for additional cuts, taking oil prices to multi-year lows.

However, oil prices have been finding floor over the recent past. On last Friday, the US engaged with G20 to consider stimulating the oil industry that has been ravaged by demand-shocks led by COVID-19 logjams in addition to supply-side shocks.

Additional positives came up as Saudis and Russians agreed to lower the global supply by 10 million a day. Russia, Saudi Arabia and the US, being the largest producers, have joined hands to stabilise the oil markets.

It’s being said that President Trump has played a crucial role in sorting the collapsed negotiations between the Saudis and Russians, which seems appropriate as a gigantic number of jobs are at the risk as oil companies shut down operations on the grounds of economics.

At the time of writing, WTI Crude was quoted at USD 22.74 while Brent Crude was at USD 31.18. In January 2020, Brent Crude was trading above USD 60, and during March, the price hovering around USD 20s to 30s.

Even though oil prices are hovering around multi-year lows, the future appears to be stable as large oil producers have come together to rescue respective interests. Besides, the oil prices could trend higher when global demand comes back online after the virus infection is under control across the large part of the world.

President Trump had also presented his desire to reopen the economy. US states had seen orders from respective Governors for the stay-at-home measures. Medical officials want the public health measures to be extended, while industrialists and businesses want them to be lifted as the economic damage is deepening day-by-day.

Australian policymakers had headroom to be more generous

Australia was fortunate enough to have fiscal headroom as the country was going to post budget surplus. However, the budget surplus should not be expected now as there is going to massive spending over the coming months.

Over to the monetary side, the Australian Central Bank started bond buying program, which it had never done before while also introducing emergency interest rate cuts, term funding facility, liquidity injections in money markets and other measures.

Among the various measures introduced by the Commonwealth Government, the most significant one appears to be the ‘JobKeeper Payment’ worth $130 billion, which would benefit 6 million workers.

Employees would receive $1500 fortnightly through their employers, meaning that the employers would be compensated by the Government, which would relieve some cash outflow pressure on companies.

Additional relief to businesses dropped as the Government provided additional clarifications on commercial tenancies. National Cabinet agreed that rent reductions would be based on tenants’ decline in turnover, and body expects financiers to support parties in the lease agreements. Further details are available on the Mandatory Code of Conduct for SMEs.

Earlier the Government had introduced payments for vulnerable sections of the society, superannuation drawdown schemes for the Australians in financial stress. Several other measures included an increase in instant write-off threshold to $150k, which included the businesses having turnover of less than $500 million.

Government also incentivised investment by the business via a depreciation deduction provisions, while there was provision for eligible small business to receive payments between $2k to $25k. Meanwhile, the Government is also investing in the SME loans and providing guarantee for the SME loans.

The Reserve Bank of Australia had introduced emergency rate cuts and noted that interest rates are likely to remain lower for an extended period or when the bank sees progress in its mandate.

The Central Bank is also targeting a yield for the 3-year Government Bond via purchasing bonds in the markets, and this was done to keep the funding costs lower for the businesses. It also announced a $90 billion term funding facility for ADIs, especially for the SME lending.

ASX companies have been preserving cash and raising capital

As cash flow blues intensified across a large part of Corporate Australia, the Managements have been looking to inject liquidity and preserve cash to sustain and pass through the pandemic led disruptions.

Corporate Australia is tapping investors as cash flows have seen a sudden stop and businesses are closed. Meanwhile, some businesses need capital to fund the growth being experienced by such businesses.

NEXTDC Limited (ASX:NXT) had completed institutional placement this month and launched a Share Purchase Plan to raise additional capital. It intends to fund the new data centre in Sydney and drive growth opportunities through the fresh capital.

On 15 April 2020, NXT was trading at $9.34, up by 0.755% (at AEST 3:04 PM).

Megaport Limited (ASX:MP1) has completed a $50 million institutional placement and launched a Share Purchase Plan to raise up to an additional $15 million from the investors. It was noted that the business is witnessing significant growth, and the fresh funds would be utilised to accelerate product development, sales and expansion over the near-term and medium-term.

On 15 April 2020, MP1 was trading at $11.170, down by 0.623% (at AEST 3:04 PM).

Southern Cross Media Group Limited (ASX:SXL) has cancelled dividends and introduced cost cutting programs. It is also raising approximately $169 million, of which $149 million was completed, and additional capital would be raised through Retail Offer. Proceeds would be used to strengthen the balance sheet, reduce net debt and for transaction costs.

On 15 April 2020, SXL notified that it would be dispatching the Retail Offer Booklet to SCA stakeholders, qualifying to take part in the retail component (accelerated non-renounceable pro-rata entitlement offer of fully paid ordinary shares in SCA). The details of it had already been mentioned to ASX on 6 April this year.

On 15 April 2020, SXL was trading at $0.177, up by 7.273% (at AEST 3:06 PM).


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