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Shares in New Hope Corp Ltd, a coal miner listed on the S&P/ASX 200 Index (ASX: XJO), are experiencing a significant drop today. After closing at $5.26 yesterday, the stock is down 4.2% in early afternoon trade on Thursday, now trading at $5.04 per share.
What's Causing the Drop in New Hope's Share Price?
This morning, New Hope (ASX:NHC) announced it has successfully priced $300 million of 4.25% senior unsecured convertible notes. After transaction fees, the company anticipates net proceeds of just over $293 million. The settlement of these notes is expected next Friday, 12 July, with a maturity date of 12 July 2029, unless redeemed earlier, repurchased, or converted in accordance with the terms and conditions.
These notes are convertible into New Hope shares at an initial conversion price of $6.63 per share, which is more than 30% above the current trading price. New Hope also has the option to settle these notes in cash.
The pressure on New Hope's share price today is likely due to derivative transactions linked to this issuance. According to the company's release:
"In connection with the issuance and pricing of the Notes, New Hope intends to purchase certain privately negotiated cash-settled call options (Capped Call Transactions) from one or more financial institutions… In connection with the Capped Call Transactions, the Capped Call Counterparties are expected to enter into various derivative transactions involving Ordinary Shares at their discretion, which could affect the market price of Ordinary Shares or the Notes otherwise prevailing at that time."
Management's Perspective
Despite today's share price dip, the $293 million in new funds is expected to support New Hope's long-term operations and growth plans. New Hope CEO Rob Bishop commented on the fresh funds:
"The capital provided by this global investor base at favourable terms will be instrumental to our pursuit of initiatives that are consistent with our strategy to maximise shareholder returns."
Additionally, CFO Rebecca Rinaldi added:
"This transaction represents another important milestone for New Hope in cementing a resilient and flexible balance sheet."
Current Performance and Outlook
Despite today's losses, New Hope's share price remains up just over 3% year-to-date. The company's shares also trade on a fully franked trailing dividend yield of 7.5%, which may appeal to income-focused investors.
As New Hope navigates through these financial adjustments, investors will be watching closely to see how the company utilizes the new capital and how the derivative transactions impact the stock's performance in the near term.
