Investors’ Delight: How Capital Raising helped listed companies

  • Jun 01, 2020 NZST
  • Team Kalkine
Investors’ Delight: How Capital Raising helped listed companies

Summary

  • While New Zealand is one of the few countries to have handled the coronavirus spread with a degree of success, the pandemic has had an impact on the country’s economy.
  • With extended lockdowns, the businesses came to a halt with limited or now business activities and falling demand for their products and services.
  • The NZ government provided significant financial support to revive the economy.

As on 01 June 2020 (9:00 AM NZST), the total number of confirmed cases in New Zealand was 1,154, with 350 probable cases. The number of deaths recorded till now stood at 22, with one active case. Travelling two months back, on 25 March 2020, New Zealand moved to Alert Level 4 restrictions after domestic transmission of the virus was found, resulting into a declaration of a state of emergency and implementation of strong containment measures including the closure of all non-essential businesses, cancellation of all events and gatherings, closure of schools, and cancellation of discretionary domestic air travel. All borders and entry ports to non-residents were locked down on 19 March making self-isolation mandatory for returning citizens.

This strongly affected the New Zealand economy, underpinned by a sharp decline in Chinese tourists in the first quarter of the calendar year 2020, which is usually the high season due to the Chinese New Year. Moreover, merchandise exports to China also declined in the first quarter.

On 28 April 28 2020, the NZ government eased little restrictions by moving from alert level 4 to alert level 3, allowing many businesses to reopen, though without physical contact to customers, and schools to reopen with limited capacity, while people were encouraged to stay at home if possible.

On May 14, 2020, the country moved to Alert Level 2, lifting lockdown restrictions, and placing strict guidelines in limiting the number of people in the congregation. For instance, maintaining social distancing in public and for private gatherings of more than ten people, and 50 people for funerals. On 18 May 2020, schools reopened while bars reopened on 21 May 2020. Businesses reopened with health and social distancing requirements, and domestic travel has been allowed. The entry of non-residents remains closed, but residents coming from outside have been advised to self-isolate in dedicated facilities for 14 days upon entry.

Under the fiscal FY21 budget, the government announced a package of NZ$62.1 billion (20.7% of GDP) through FY2023-24. This package will see initial disbursement of NZ$20.5 billion by end-June. The amount (NZ$0.5 billion or 0.2% of GDP) will be used in healthcare-related spending to reinforce capacity; NZ$2.4 billion or 0.8% of GDP will be utilized in social spending to protect vulnerable people; NZ$15.2 billion or 5.1% of GDP will be used in providing 12-week wage subsidy to support employers severely affected by the impact of COVID-19; NZ$2.8 billion or 0.9% of GDP will be utilized in making a  permanent change in business taxes to help cashflow; NZ$3.1 billion or 1% of GDP will be used in a temporary tax loss carry-back scheme, and NZ$0.6 billion or 0.2% of GDP will be used in supporting the aviation sector.

Other than this, the government is providing loans of up to NZ$100,000 to small businesses that employ 50 or fewer employees. The government to maintain an uninterrupted inflow of all medical and hygiene imports needed for the COVID-19 response, temporarily removed tariffs on essential related goods.

Most of the listed companies are engaged in capital raising programs via the issue of bonds, issue of shares, or via share purchase schemes, divestment, etc., to provide strength to their balance sheet. Some of the good examples are Auckland International Airport Limited (NZX:AIA), Chorus Limited (NZX:CNU), and Tilt Renewables Limited (NZX:TLT).

 

Five Year Comparison Chart (Source: Company Reports)

Five Year Comparison Chart (Source: Company Reports)

Auckland International Airport Limited is the third busiest international airport in Australasia. Movement of around NZ$15 billion worth of freight through its airport every year marks its significance in the New Zealand economy. Post the outbreak of Covid-19, AIA deferred most projects, with growth projections in travel numbers is in ambiguity. During March 2020, the company reported a total passenger volume of 1.084 million, down by 42.0% as compared to last year. The international passengers declined by 43.2%, domestic passengers declined by 40.1%, and transit passengers declined by 49.5%. This decline in numbers reflects the impact of the travel restrictions imposed by the New Zealand Government. On 14 May 2020, the country entered Alert Level 2, and the airline will now operate up to 20% of pre-Covid-19 capacity.

The company’s recently launched share purchase plan (SPP) for the amount ~NZ$200 million was oversubscribed. The SPP received strong support from the shareholders, underpinned by the reception of applications for an amount totalling ~NZ$489 million. With this, the new shares under the SPP were issued at NZ$4.66, at the same price mentioned during placement.

Chorus Limited is a New Zealand’s leading fixed-line telecommunications network operator. For the half-year ended 31 December 2019, the company reported net profit after tax of NZ$31million and EBITDA of NZ$332 million up from NZ$318 million in 1HFY19. The increase in EBITDA can be attributed to the combination of strong broadband connections growth and operating cost reductions. CNU’s focus is entirely on connecting as many customers as possible, as its fibre network continues to expand and now available to about 1.2 million homes and businesses in the company’s build areas.

The company recently announced that it inked an agreement with its lenders to extend its NZ$550 million committed bank facility. Under the agreement, CNU has extended the NZ$350m tranche by 11 months to April 2023, with a commitment stepdown to NZ$290 million for the period from May 2022 to April 2023. Additionally, the company has also extended its NZ$200 million tranche by 11 months to April 2025. This development will continue to support potential future funding needs for the company, providing it financial flexibility and funding certainty.

Tilt Renewables Limited is engaged in the business of development, ownership, and operation of electricity generation facilities as well as trading in electricity and associated products from renewable energy sources. 

As per the release, the company expects its earnings for the financial year 2020 towards the lower end of the updated guidance band of NZ$118 million to NZ$122 million. This was mainly due to slower than anticipated ramp-up of generation at DDWF in March, and transmission outages in Victoria in February, impacting revenue from the Snowtown 1 Wind Farm. In April, the company announced that it intends to return ~AU$260 million, to shareholders via a pro-rata share buy-back, providing the benefit to its 8.1K shareholders directly from the highly successful sale of Snowtown 2. Even after this development, the company would still be left with plenty of cash to pursue growth opportunities.

 


Disclaimer
The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. The above article is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) under discussion. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site.

 

   
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