Capital raising

[stoli]

Can someone please explain to me how a capital raising works? For example, Sonic Healthcare and Incitec Pivot both are in trading halt pending announcement of a capital raising. If additional shares are offered at a discounted price, how do investors purchase them?
Stoli

 

[drsmith]

As part of the capital raising most are offering additional shares at the discounted price to existing shareholders by either a share purchase plan (typically $5000 but $10000 in the case of NAB) or via a rights issue.

Where the raising is via an underwritten dividend reinvestment plan the individual shareholder can participate by being in the dividend reinvestment plan.

Keep a close eye on market prices though. If the share price subsequently falls below the capital raising price it is better to buy on market.

 

[prawn_86]

Can someone please explain to me how a capital raising works? For example, Sonic Healthcare and Incitec Pivot both are in trading halt pending announcement of a capital raising. If additional shares are offered at a discounted price, how do investors purchase them?
Stoli

DrSmith is right, the shares are only offered to current holders. Usually the cap raisings will have an entitlement date, so if you buy shares in the company before a certain date, your are entitled to take part in the cap raising.

Alternatively the co could go to 'sophisticated' investor (hedge funds, banks etc) and raise capital there, still by selling shares, without giving everyone the chance to participate

 

[stoli]

Thanks everyone, that's very clear.
Stoli

 

[drsmith]

Westfield has come up with an interesting twist to the underwritten DRP by opting for half of each of the next 4 distributions.

If the Lowy family take up their full entitlements then only 45% of remaining shareholders (by volume) will need to take up theirs to avoid troubling the underwriters.

 

[drsmith]

At first glance the capital raising by Incitec Pivot seems extrordinary given that it is on the back of a bumper profit (all be it at the peak of it's product cycle) but with the issue price at a severe discount to the current share price.

The balance sheet is far more revealing however. A large purchase with lots of goodwill and significant debt financing. Most of this debt is short term (under current liabilities) which perhaps explains the nature of the capital raising.

In terms of the balance sheet I see Wesfarmers is in a similar situation after it's Coles purchase although one important difference is that much more if it's debt maturity profile is longer term (under non-current liabilities).

The question that comes to mind is the prospect of Wesfarmers going to the institutions begging bowl in hand for a capital raising at a deep discount to the share price.