Xero Limited Launches US$300 Million Convertible Notes Offer And Provides FY19 Trading Update

  • Sep 27, 2018 AEST
  • Team Kalkine
Xero Limited Launches US$300 Million Convertible Notes Offer And Provides FY19 Trading Update

Xero’s share price tumbled on ASX after the company unveiled the US$300 million convertible notes offer, due 2023.

After the market had closed yesterday, 26 September 2018, cloud accounting software provider Xero Limited (ASX: XRO) announced the offering of US$300 million guaranteed senior unsecured convertible notes and trading update for fiscal 2019. The issuer of the notes is a wholly-owned subsidiary of Xero Limited, Xero Investment Limited while Goldman Sachs and Morgan Stanley are acting as joint lead managers on the offering.

The notes are intended to be listed on Singapore Exchange with the conversion to be settled in cash unless the issuer Xero Investment elects to issue Xero shares to noteholders.

In today’s market release, company told that notes will carry an interest rate of 2.375% yearly, which will be payable semi annually on 4th day of the month of April and October every year.

The initial conversion price of the note is fixed at US$46.338 per share, reflecting a premium of circa 30% over the reference share price. The settlement of the offer is scheduled for 4 October 2018.

It is expected that Xero Limited will derive net proceeds of approximately US$242 million which the company intends to utilize in acquisitions and investments in twin businesses as in line with the company’s strategy.  

Xero Limited and its issuer has also entered into call option transactions which are expected to bring down the potential dilution to current Xero’s shareholders upon the conversion of the notes. The call option arrangement includes the joint lead managers granting call option of 6.5 million XRO shares to issuer at an exercise price of US$46.338 per share and settlement in cash with expiry of 5 years. On the other hand, issuer granted call option to JLM for the same number of shares at an exercise price of US$60.596 per share but the option is said to be settled physically by the issue of Xero shares while expiry remains the same.

Along with the convertible notes offer announcement, company outlined the trading update for the year ended 31 March 2019. Xero forecasts the reduction in cash outflow compared to previous year.

Prior to Xero’s strategic alliance with Gusto, acquisition of Hubdoc and the changes in accounting standard effective from 1 April 2018, the company expects FY19 revenue to range between NZ$528 and NZ$558 million while EBITDA is forecasted to fall somewhere between NZ$66 million and NZ$94 million.

In the early morning trade, Xero’s shares were seen to be dropping down on ASX. Currently, as at 27 September 2018 (1:30 PM AEST), the share price of Xero Limited has sunk by 1.8% to $48.79. The stock has seen a performance change of 89.30% over the past one year.

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