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Australia’s capital raising surge may repeat due to second wave
Law firms may need to prepare for an unprecedented spike in Australian capital raising again as the full economic impact of COVID-19 becomes clear.
Tony Zhang
Herbert Smith Freehills has analysed a flurry of capital raising transactions undertaken by Australian companies during the early stages of the global pandemic and the possibility of the surge repeating as a result of further cases.
“The initial rush to raise funds in response to the uncertainties associated with [COVID-19] has since slowed. Funds raised and the number of raisings peaked in the week between 27 April and 1 May and have generally trended down since,” Mr Ziegelaar said.
“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”.
The HSF report “Covid-19 capital raisings: what we learnt" found that over $26 billion was raised in just 15 weeks (between 18 March 2020 and 30 June 2020).
There were 80 raisings of at least $25 million each and nine “mega” raisings of over $1 billion each, leading to an average raise size of $333 million.
The majority of raisings were undertaken by the resources sector (20 per cent of all raisings), followed by the consumer discretionary sector (16 per cent) and the information technology and real estate sectors (13 per cent each).
The ASX has already extended its temporary capital raising measures until 30 November, as a second wave of COVID-19 infections batters Victoria.
The extension would allow listed entities impacted by the COVID-19 pandemic further time to raise urgently needed capital, the ASX said.
As of the end of June, almost 60 listed entities had already taken advantage of the ASX’s temporary emergency capital relief measures, raising approximately $11 billion.
The forthcoming results season will show how COVID-19 has hit corporate Australia.
Lawyers Weekly understands there are a lot of companies in waiting, especially travel companies such as Qantas Airways, Scentre Group, Seek, Sydney Airport and Air New Zealand.
Philippa Stone, Herbert Smith Freehills partner and co-head of equity capital markets in Australia, who has completed significant raises during COVID-19 added with fresh case 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,” she said.
