ASX 200 Stocks with Cracking Equity Raising deals: A look at Lynas and IAG Share Price

Summary

• The disruption and financial turmoil created by the COVID-19 pandemic has prompted many companies to raise capital to gain a strong capital position or liquidity.
• Rare Earth minerals explorer, Lynas raised ~A$425 million through institutional placement and entitlement offer to fund the Lynas 2025 foundation projects.
• Insurance Australia Group had been highlighting its interest to raise funds to gain liquidity.

Share prices of many ASX 200 companies had touched rock bottom during the COVID-19 pandemic because of poor business performance. The disruption and financial turmoil created by the coronavirus outbreak has prompted these ASX200 companies to raise capital to stay afloat in the business environment.

While few companies have raised funds to gain a strong capital position to facilitate expansions and business growth, others have secured funding to keep themselves liquid rich when operating cashflows have been dipping.

Let us glance through two ASX stocks who have recently showcased their intentions to raise capital to maintain liquidity in business.

Lynas Corporation Limited

Lynas Corporation Limited (ASX:LYC) is a Rare Earth minerals explorer with assets in Australia and Malaysia.

On 17 August Lynas announced its full year results ending June 2020 with an EBITDA of $59.8 million, significantly lower than $100.7 million EBITDA reported in FY19. The decrease was due to the 6-week shutdown of its Lynas Malaysia plant because of Malaysian Government’s COVID-19 Movement Control Order. FY20 Net sales revenue reached $305.1 million with a total 14,562t REO produced.

The Equity Raising

The Company also highlighted a fully underwritten ~A$425 million equity raising to be funded through an institutional placement of ~A$211.6 million and pro rata accelerated non-renounceable entitlement offer of ~A$213.7 million.

Some of the offer details are as follows:

• The A$211.6 million institutional placement will be raised through approximately 92 million new fully paid ordinary shares in Lynas (New Shares)
• ~A$213.7 million will be raised through a 1 for 7.7 pro rata accelerated non-renounceable entitlement offer to eligible existing shareholders. Under the Entitlement Offer, eligible shareholders will get a chance to subscribe 1 New Share for every 7.7 existing Lynas shares held, as at the Record Date (7:00 PM, on 19 August 2020)

Use of Proceeds

The proceeds from the equity raising will be used to fund the Lynas 2025 foundation projects that are expected to be delivered in 2023, such as:

• The Planned Kalgoorlie Rare Earths Processing Facility designed to produce mixed Rare Earths carbonate that will be shipped to the Lynas Malaysia Plant.
• Upgrades required at the Lynas Malaysia Plant

Any additional proceeds will be utilised for general corporate and working capital purposes.

Also Read: Market Update: S&P/ASX200 Ended in Green; LYC Soared by 11.982%

The Rationale

The funding is supporting the Lynas business strategy to transform to a larger and more diverse business by 2025. All the major projects that will be deliverable in 2023 are part of the Lynas 2025 vision and will assist in building a foundation for further growth.

Other necessities include of the following:

• To meet regulatory requirements, on time delivery of Lynas 2025 foundation projects is crucial; and
• A strong cash position is required in case operating cashflow gets hampered due to uncertain global economy because of COVID-19 effects.

The Company’s equity raise is a proactive capital management decision to continue to progress as per the required timelines.

Lynas is receiving strong support from the governments of Australia and Western Australia for the development of Australian based Rare Earths processing capability.

Raising funds will also allow better planning and management of the extensive capital plan through to 2023.

Lynas last traded on 14 August 2020 at a price of A$2.61. The market capitalisation of LYC stood at A$1.87 billion. LYC has provided returns of 34.54% and 52.19% within last one and three-month period, respectively.

Also Read: Lynas And Pentagon Ink Contract for In-Situ Development of a REO Separation Facility

Insurance Australia Group Limited (ASX:IAG)

IAG operates as a parent company of firms providing general insurance in Australia and New Zealand.

The subordinated debt

On 17 August 2020, IAG announced offering a new subordinated debt issue with an intention to raise at least A$300 million. The subordinated debt is expected to qualify as Tier 2 Capital under the capital adequacy framework of Australia Prudential Regulation Authority’s (APRA).

The price at which the subordinated debt will be issued to the wholesale investors is anticipated to price on or before 18 August 2020, contingent on market conditions.

IAG had previously disclosed its intention to issue a new Tier 2 subordinated instrument in FY21 to offer further liquidity, as mentioned in its FY20 Investor Report released on 7 August. Also, the Company announced its FY20 results on the same day.

Terms of the proposed issue

The subordinate debt has a legal maturity of 16 years ending in December 2036, contingent on non-viability conversion and rights of redemption as defined ahead:

• Insurance Australia Group may redeem the securities in 6^th year on 15 December 2026 at face value and quarterly on payment dates thereafter, as well as at any time for certain tax and regulatory events, each subjected to APRA’s written approval.
• If APRA determines IAG to be non-viable, the securities will convert into a number of IAG Ordinary Shares calculated by reference to a volume-weighted average price prior to conversion or, if conversion does not occur when required, the securities will be written off.
• If not redeemed or converted or written-off beforehand, the securities will be subordinated to senior creditors on a winding up of IAG.
• The securities will pay a floating rate of interest and a bookbuild process will determine the margin.
• The securities are expected to have a notional face value of $10k per note, with $500k as a minimum subscription amount or otherwise issued in a manner, which does not require disclosure in line with Part 6D.2 or Part 7 of the Corporations Act.

On 18 August, Insurance Australia Group was trading at A$5.080 per share, up by 0.395% (at AEST 1:51 PM). The market capitalisation of IAG stood at A$11.69 billion. The IAG stock has provided negative returns of 10.60% and 6.99% within last one and three- month period, respectively.

Also Read: S&P/ASX200 Falls 1.16%; IAG Declined By 7.80%