Australia’s capital raising surge may repeat

An unprecedented spike in Australian capital raising earlier this year could soon be repeated as the full economic impact of Covid-19 becomes clear, according to a new report by global law firm Herbert Smith Freehills.

The report, “Covid-19 capital raisings: what we learnt”, analyses the flurry of capital raising undertaken by Australian companies during the early stages of the global pandemic.

It found that over A$26 billion was raised in just 15 weeks (between 18 March 2020 and 30 June 2020). There were 80 raisings of at least A$25 million each and nine ‘mega’ raisings of over A$1 billion each, leading to an average raise size of A$333 million.

The majority of raisings were undertaken by the resources sector (20% of all raisings), followed by the consumer discretionary sector (16%) and the information technology and real estate sectors (13% each).

Michael Ziegelaar, Herbert Smith Freehills partner and co-head of Equity Capital Markets in Australia explained that while this peak in activity has now slowed, the unprecedented level of capital raising could be repeated in the coming months.

“The initial rush to raise funds in response to the uncertainties associated with Covid-19 has since slowed. Funds raised and number of raisings peaked in the week between 27 April and 1 May and have generally trended down since.

“However, as the effect of Covid-19 on FY21 performance becomes clearer and we face the slow recovery of the global economy, there may be a second bumper round of capital raisings in August in conjunction with the announcement of full year FY20 results”.

Philippa Stone, Herbert Smith Freehills partner and co-head of Equity Capital Markets in Australia, added, “With fresh Covid-19 outbreaks and restrictions being tightened again in some states, the reopening of our economy could remain slow, which could adversely impact companies’ liquidity and drive more raisings.

“If there is a continued market downturn, or other factors arise that make it difficult to raise funds by placements, Share Purchase Plans (SPPs), and entitlement offers, there may also start to be use of convertible debt structures or other innovative capital raising structures in more difficult cases.”

Additional findings of the report:

• The financial sector raised the highest amount of funds (20%), followed by the industrials sector (19%) and the real estate sector (15%).
• More than half of the raisings during the period (55%) were pre-emptive, to provide companies with liquidity and position them for growth.
• Fundraisers and investment bankers stuck with the simplest and quickest ways to raise capital in in these uncertain times — 80% of funds were raised through a placement and SPP, 10% were through a placement and entitlement offer, and 2% were through a placement only (with the remaining 8% comprising entitlement offers only or a combination of the three).
• 81% of placements (97% by value) were underwritten, but only 4% of SPPs (1% by value) were underwritten.
• Entitlement offers constituted 72% of the amount raised and SPPs constituted 15% of the amount raised where conducted with a placement.
• The timing until completion of raisings was generally consistent with pre-pandemic raisings. From announcement, placements typically completed in five business days, entitlement offers typically completed in 20 business days, and SPPs typically completed in 26 business days.

For more information or to get a copy of the report, please visit: https://www.herbertsmithfreehills.com/latest-thinking/covid-19-capital-raisings-what-we-learnt