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Summary
- Multiple ASX-listed firms reached out to the Australian capital market over the last few months to stand back on their feet.
- About $31 billion of secondary capital was raised on the ASX during June 2020 quarter.
- Widespread liquidity crunch, remarkable performance of the ASX 200 index and temporary capital raising relief measures by ASX and ASIC primarily drove capital raisings.
- Secondary capital raisings are likely to remain buoyant over the coming months.
- Investors need to obtain a better understanding on capital raise reasons before illustrating an over-optimistic investment stance.
At the time when the Global Virus Crisis (GVC) intensified the risk of insolvency for Australian businesses, ASX emerged as a saviour in keeping businesses afloat, offering a key platform for capital raisings.
Amidst widespread liquidity crunch, multiple ASX-listed firms reached out to the Australian capital market over the last few months to stand back on their feet, as evident from recent data from ASX Limited.
About $31 billion of secondary capital was raised on the ASX during June 2020 quarter, making it the second-largest quarter in history after December quarter 2009. Moreover, COVID-19-related activities significantly boosted secondary capital raisings on the ASX in FY20, as indicated in the below figure:
While some capital raisings were undertaken to address the unprecedented impacts of coronavirus outbreak, the others were conducted to sustain businesses and jobs and to aid innovation. These capital raisings have been seen to provide cushion to some businesses and their stock performances in the Australian share market.
Key Drivers of Capital Raisings in COVID-19 Era
ASX-listed companies embraced capital raising as a weapon to strengthen their balance sheets and foster capital buffers to ride through the coronavirus crisis. Consequently, year-on-year total capital raised on the ASX soared by 185 per cent, 49 per cent and 256 per cent in April, May and June 2020, respectively.
Besides, the dazzling performance of the Australian benchmark index in revitalising from March 2020 lows appears to have boosted investors’ confidence in the nation’s capital markets. The S&P/ASX 200 index has delivered a substantial return of about 30 per cent since March dip (up till 15th September 2020).
The index seems to have bounced back on hopes of quicker economic recovery, buoyancy around coronavirus vaccine development and upbeat investors’ sentiments.
Additionally, the grant of temporary capital raising relief by ASX and ASIC (Australian Securities and Investments Commission) appears to have lent a helping hand to ASX-listed players. Regulators provided the grant in terms of increasing placement capacity, relaxing 1:1 non-renounceable entitlement offer cap and easing other capital raising norms.
As on June 2020 end, ~60 ASX listed companies had utilised emergency capital raising relief measures by ASX. The existing measures are due to expire on 30th November 2020.
It is imperative to note that ASX will soon revise these temporary capital raising measures, which gave a leg up to the companies battling with the COVID-19 pandemic. Effective 15 September, businesses that intend to raise capital will have to satisfy ASX on the potential anticipated financial impact of the COVID-19 crisis on the business sustainability.
Some Recent Capital Raisings on ASX
Australian aerial imagery technology and location data company, Nearmap Limited (ASX:NEA) recently announced $90 million capital raising to accelerate growth opportunities. The capital raising comprised a $20 million share purchase plan and a $70 million institutional placement, out of which the Company has successfully completed $72.1 million Placement.
Besides, Australia's fastest-growing online bookmaker, PointsBet Holdings Limited (ASX:PBH) also unveiled a massive $353 million capital raising recently via Placement and Entitlement Offer. The Company has successfully raised $200 million under Placement to institutional investors.
In addition to these two sizeable capital raisings, the Australian miner, Oakdale Resources Limited (ASX:OAR) has also raised $2.2 million via Placement to support its drilling operations. Besides, lithium-ion battery specialist, Magnis Energy Technologies (ASX:MNS) has recently received firm commitments to raise $7.65 million via Placement.
Outlook for Capital Raising Activity
Amidst uncertainty surrounding the COVID-19 pandemic, several other companies are likely to seek capital in the days ahead to breeze through the crisis. While we may see IPOs witnessing some impact from the ongoing market volatility, secondary capital raisings are likely to remain buoyant over the coming months.
With Australia still battling with the second wave of COVID-19 infections, any further economic shocks could possibly prompt firms to raise more equity capital.
Drawing Investment Decisions
While capital raisings might look exciting sometimes, investors need to obtain a better understanding on capital raise reasons before illustrating an over-optimistic view.
Towards this end, several factors deserve closer attention, including:
- management’s ability to handle risk profile and their confidence in the capital raising deal,
- returns expected over time post capital raising, and
- anticipated trajectory of stock price appreciation.
It’s all about taking balanced and prudent decisions while embracing a mix of technical and fundamental analysis, before taking any investment stance from the equity standpoint.
