The Intricacies of Equity Capital Raising

June 7, 2020
Editor(s): Justin Lai
Writer(s): Matthew William, Annie Zhu
Source: https://www.undertheradarreport.com.au/blog/may-2020/should-i-take-part-in-capital-raising

If a company requires a cash injection to expand existing operations, protect market share, develop new businesses or acquire another company, it may require more funds than its retained earnings.

Capital raising is a way around this problem where company directors generally have two options: to borrow the money or raise more equity. In some cases, equity financing is preferred as there is no obligation to repay the money acquired. In this article, we mainly discuss the intricacies of equity capital raising with discussion on recent rulings,  prominent cases and the effect COVID-19 has had on it.  

In terms of equity financing there are rules noting that the limit of placements of new shares are 15% of issued equity in a 12-month period. However, the Australian Securities and Investment Commission and Australian Securities Exchange jointly moved the limit 25% per cent at the beginning of April. Therefore, it increases the amount of capital that can be raised. 

This is a significant ruling as there are at least 20 announcements by S&P/ASX 300 companies since the changes came into effect. Of the capital raisings so far, the highest percentage gains on offer price were by Southern Cross Media (SXL, 72%, Ooh!Media (OML, 60 percent) and Webjet (WEB, 53 percent) as at close of trade on Friday April 17.

Additionally, there is also a lingering sentiment that capital raising does not favour retail investors. The catalyst for this being the Global Financial Crisis where institutional investors came out significantly ahead. On this note, an analysis by Ownership Matters shows that of the 20 COVID-19 capital raisings, half involved an associated share purchase plan (SPP) for existing retail shareholders and nine had entitlement offers where investors were already on the registry and got automatic allocation. This implies that 75% of the $8.5 Billion raised a few months ago were taken by fund managers and institutional investors, with little access provided to retail investors.

In terms of a specific company case of equity capital raising, recently, Blackmores; the famous brand for vitamins and nutrients announced on the 27th May their capital raising plans. Blackmores’ purposes $50 million of the new equity raised to strengthen their balance sheet and another $40 million to boost growth in Asia and boost efficiencies. To manage the float process Blackmores has engaged with Goldman Sachs to underwrite the placement and to be lead manager on the deal.  Blackmores plans to raise an overall $117 million capital raising, which includes a $25 million share purchase plan at the price of $72.50. The share offer is priced at 8.1 percent discount in comparison to Blackmores’ last closing share price since the announcement which was $78.85. Australian and Asian investors are invited to submit their bids into the placement by 4:30pm and others by 10pm. Immediately after launch, a book message said, “indications of demand from a pre-launch wall-cross process exceed the placement size.” 

As COVID-19 has taken a turn on the economy, many companies are looking towards capital raising to help them through these tough times. During this capital raising rush, Macquarie Australia’s multinational independent investment bank and financial services company has come out with a win, taking on 19 deals so far in 2020. Macquarie has profited through its fees to act as the underwriter. To showcase Macquarie’s win, an analysis on Southern Cross Media capital raising efforts can epitomise Macquarie’s benefits. Macquarie’s fee to underwrite Southern Cross Media’s emergency capital raising was 3 percent of the $169 million that was expected to be raised. Southern Cross Media’s placement had valued its new shares at 45% discount in comparison to its share price before raising. 

As many companies in Australia rush to raise capital, foreign companies like Norwegian Cruise Line raise capital to brace for COVID-19 uncertainty. Norwegian Cruise Line raised over $2 billion in a mix of stock and debt. Specifically, the company issued $400 million in shares, approximately $1.43 billion in two debt offerings as well as a $400 million investment from L Catterton. The newly raised capital will total up to $3.5 billion in liquidity, to prepare for a year of potential voyage suspensions. 

Essentially, during COVID-19 companies need cash and funds to maintain company functions. Capital raising after the age of COVID-19 may be reduced as the economy bounces back and operations return back to the norm. 


Danckert, S. (2020). Capital raisings in crisis times: A dark art, or a saving grace?. Retrieved from https://www.smh.com.au/business/markets/capital-raisings-in-crisis-times-a-dark-art-or-a-saving-grace-20200403-p54gp6.html

Feurer, W. & Mody, S. (2020) Norwegian Cruise Line raises over $2 billion to withstand ‘well over’ a year without revenue. Retrieved from https://www.cnbc.com/2020/05/06/norwegian-cruise-line-raises-over-2-billion-to-withstand-well-over-a-year-without-revenue.html?&qsearchterm=capital%20raising.

Gray, D. (2020) ‘Run out of money’, Marcus Blackmore stays out of capital raising. Retrieved from https://www.smh.com.au/business/companies/blackmores-taps-investors-for-almost-120-million-as-coronavirus-bites-20200527-p54wsi.html.

Thompson, S., Macdonald, A. & Boyd, T. (2020) Blackmores taps Goldman Sachs for first ever raising. Retrieved from https://www.afr.com/street-talk/blackmores-taps-goldman-sachs-for-first-ever-raising-20200527-p54wru.

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The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.

Meet our authors:

Justin Lai
Matthew William
Annie Zhu