Capital Raising in the Wake of COVID-19; Lens on ELO, MQG, IPL, KTD

The uncertainty and challenging situation caused by COVID-19 has presently squeezed out the financials of businesses around the globe. In order to boost the balance sheet, lessen the impact of reduced work capacity and increase the cash, businesses are raising capital via institutional placement, SPP, seeking assistance from its lender group, issuing Notes, to name a few.

ASIC (Australian Securities and Investments Commission) is dedicated to refocusing its regulatory efforts on difficulties that has followed the outbreak of coronavirus. ASIC is helping businesses in speeding up the process of capital raise.

On 31 March 2020, ASIC announced that it had been aiding the listed entities by providing temporary relief to facilitate certain ‘low doc’ offers to investors. These ‘low doc’ offers comprises of placements, rights offers and SPP.

Interesting Read: Capital Raising 2.0: How are ASX Players doing?

Let us now discuss the four stocks from the diverse sector: ELO, MQG, IPL, KTD that have recently concluded capital raising.

ELMO Software Limited (ASX:ELO)

Information Technology company, ELMO Software is a provider of cloud-based payroll, HR, rostering / attendance & time software. The Company was founded in 2002 and currently operates in New Zealand and Australia.

Concluded oversubscribed $70 million Placement: On 12 May, ELO notified the market on the conclusion of its wholly underwritten $70 Placement at an offer price of $7.00/new share. Moreover, the Placement was oversubscribed with solid support from both local and global investors including current eligible stakeholders along with new institutions.

Reaffirmed financial year 2020 Guidance: ELO reiterated its updated guidance for FY 2020 on 11 May 2020, which stated that the revenue was likely to lie in between $50 - $52 million and EBITDA was to be in the range of $4 - $6 million.

Capital Raising: The Company notified the market that it was undertaking an institutional placement of $70 million (fully underwritten) on 11 May. The placement involves the issue of 10 million new shares, which is equal to 13.3 per cent of total outstanding shares. The issue price of the placement is $7.00 per share which signifies the following two:

• 8.8 per cent discount to 5-day VWAP (Volume Weighted Average Price) of $7.68 per share
• 11.5 per cent discount to $7.91 per share, (the closing price) as on 8 May 2020

The underwriters of the Placement include Canaccord Genuity (Australia) Limited (Canaccord Genuity) and UBS AG, Australia Branch. The expected date for the settlement and allotment of the new shares issued under the Placement is 15 May 2020 and 18 May 2020, respectively.

Once the Placement is completed, ELMO will execute SPP offer to raise an additional amount of maximum $20 million (non-underwritten) from eligible and existing shareholders. The Company mentioned that SPP funds will boost its cash resources even further.

The Company plans to utilise the proceeds of the placement to fund the organic and inorganic growth of ELO. Organic growth includes spending on sales & marketing, research & development, and geographic expansion. Inorganic growth comprises of M&A activities and integration related to M&A. ELMO also mentioned that after the Placement is completed, it will have no debt and pro forma cash (as at 31 March) of $137.3 million.

On 12 May 2020, ELO was trading at $7.13, down by 9.861% (at AEST 12:45 PM).

Macquarie Bank Limited (ASX: MQG)

International financial services provider, Macquarie Bank functions through 31 markets in the space of commodity trading, investment banking asset management and many more.

Notification to raise $400 million via BCN2: On 11 May 2020, the bank notified the market about its intention to raise $400 million via the offer of BCN2 (Macquarie Bank Capital Notes 2) at an issue price of $100 per BCN2. The proposal of BCN2 was created as per a Prospectus that was placed with ASX and ASIC (Australian Securities and Investments Commission).

The notes issued by MBL as BCN2 are unsecured, fully paid, non-cumulative, perpetual, automatically convertible, subordinated and mandatorily convertible. BCN2 are likely to be on the ASX (Australian Stock Exchange) as the code MBLPB. Subject to a precise Payment terms and conditions, the distributions are planned to be paid in arrears on quarterly basis.

For Australian Prudential Regulation Authority purposes, BCN2 will be eligible as the Company’s Additional Tier 1 Capital. Macquarie mentioned that net proceeds of the offer would be utilised for general corporate activity.

A replacement prospectus covering the margin is likely to be available on 19 May 2020.

Joint Lead Manager and Sole Arranger in the launch are Macquarie Capital (Australia) Limited. Additional Joint Lead Managers are National Australia Bank Limited, ANZ Securities Limited, Westpac Institutional Bank, E&P Corporate Advisory Pty Limited, Commonwealth Bank of Australia, Morgans Financial Limited, Ord Minnett Limited, and Citigroup Global Markets Australia Pty Limited.

On 12 May 2020, MQG was trading at $108.00, down by 3.174% (at AEST 1:10 PM).

Incitec Pivot Limited (ASX: IPL)

With its roots in Europe and North America, Incitec Pivot is an international leading entity in the space of resources and agriculture both.

Conclusion of $600 Placement: On 12 May, IPL concluded $600 million (fully underwritten) Placement as notified on 11 May. IPL gained substantial interest from local and international (both institutional and professional) investors.

Capital Raising notification: With a purpose to strengthen its balance sheet by becoming more resilient in the prevailing environment of coronavirus, IPL disclosed that it will be raising capital on 11 May. Moreover, the placement will provide financial flexibility to carry out organic growth opportunities.

The Company would be taking up an institutional placement to raise $600 million of new ordinary shares (fully underwritten). The new shares of 300 million are equivalent to nearly 18.6 per cent of the Company’s present ordinary shares. The placement price will be of $2 per New Share which signifies the following two-

• 10.7 per cent discount to the Company’s 5-day VWAP
• 8.7 per cent discount to $2.19 per share (Incitec’s last closing price on 8 May 2020)

The Placement is underwritten (fully) by Merrill Lynch Equities (Australia) Limited, J.P. Morgan Securities Australia Limited, and Macquarie Capital (Australia) Limited.

IPL also mentioned that it would execute SPP offer to raise a maximum of $75 million once the placement is completed.

After the capital is raised, it will decrease the Company’s pro forma net debt to $1,276 million with net debt/EBITDA of 1.9x.

HY20 Results: Also, Incitec released its half-year FY 2020 results for the period ended 31 March 2020, the snippet of the performance as follows-

• EBIT (Earnings Before Interest and Taxes) stood at $159 million, an upsurge of 34 per cent as compared to HY 2019.
• Statutory NPAT increased by 22 per cent on pcp basis, from $42 million to $65 million.
• The Company’s operating cash flow was noted at $152 million.
• Earnings Per Share was noted at 4 cents per share, reflecting an increase from 2.6 cps noted in HY 2019.

On 12 May 2020, IPL was trading at $2.07, down by 5.479% (at AEST 1:39 PM).

Keytone Dairy Corporation Limited (ASX:KTD)

Consumer staples company, Keytone Dairy is a producer and exporter of health & wellness products and formulated dairy products. The Company is headquartered in Christchurch in New Zealand and Sydney and Melbourne in Australia.

Invitation to Stakeholders to take part in SPP: On 12 May KTD’s Company Secretary Heidi Aldred released a letter addressed to the stakeholders, inviting them to take part in SPP. The Placement is anticipated to conclude, and shares are being projected to be issued by 14 May this year as per KTD’s capacity pursuant to Australia Stock Exchange Rules (7.1 and 7.1 A). KTD also mentioned the details of SPP in the letter.

Binding Commitments obtained for Placement Raising: KTD notified the market on 11 May that it had received binding commitments for raising $12.5 million through a placement of ~40.3 million shares. The placement has an offer price of $0.31 per share, which signifies the following two-

• 11.4 per cent discount to the last close price
• 19.4 per cent discount to the 5-day VWAP of KTD’s shares before the Placement

The proceeds from the Offer will be utilised for the following four purposes:

• To provide working capital to meet the growing number and size of customer orders.
• To finance marketing and sales of the Keytone’s higher margin proprietary products.
• To fund the strategic acquisition opportunities.
• To provide CapEx towards AusConfec barline.

Bell Potter Securities Limited and Peloton Capital Pty Ltd represented as the Joint Lead Managers to the Offer.

The Company will also enable eligible stakeholders in both Australian and New Zealand regions to take part through a SPP to raise a maximum of $2.5 million.

Strategic alliance: Omniblend Pty Ltd, the 100% owned subsidiary of KTD had acquired the assets of AusConfec Pty Ltd for $2.25 million. From this acquisition, positive earnings are expected in FY 2021 (1 April 2020 - 31 March 2021).

The Australian Federal Government awarded Omniblend with a grant of $800,000 Manufacturing Modernisation Fund, which will be advantageous for the acquired assets.

On 12 May KTD was trading at $0.335, down by 2.899 (at AEST 2:09 PM).