Even though it has reported poor results and several earnings downgrades, plus having had to deal with rumours of debt and cashflow problems, AWB, the old monopoly wheat exporter, has seen a strong share price in recent weeks.
In fact it copped a please explain late last week from the ASX when its shares rose from around $1.38 to $1.52 in the space of several days.
The answer was the usual ‘the company knows of no reason’ and AWB went on to point out the odd broker upgrade, rainfall in some grain growing regions and higher forecasts for the wheat crop (which now looks like falling because of the dry in NSW and the terrible dust storms).
The shares were around $1.50 when queried, and they then retreated to close on Tuesday at $1.445.
But since the start of the month they have jumped more than 20% as some investors obviously thought something was on.
But in rising by that amount, the market has allowed AWB the leeway to come to the market in a highly dilutionary capital raising, which was announced yesterday.
AWB said it will raise $459 million in a new share sale to reduce debt, and will also refinance loan facilities due to mature next month.
The size of the issue is only $59 million short of the market cap Tuesday at the close of $5.18 million, so the price rise since the start of the month has been a bit of a godsend.
The issue is being made at $1 a share, a 31% discount to the market price.
If the price had been around $1.30, the issue price would have been under $1 and existing shareholders would have been swamped.
As it is they will have to put up money to maintain their holdings.
The company will raise $359 million in a one-for-one entitlement offer and a further $100 million in an institutional placement, Melbourne-based AWB said.
Of the entitlement offer, about $115 million will be raised from institutions and $244 million will be raised from retail investors.
The equity raising is fully underwritten.
AWB says the equity raising will reduce its net debt to $490 million by September 30 from $1.1 billion the year before.
That’s a fall of $646 million from a year earlier.
"The capital raising is being undertaken to strengthen AWB’s balance sheet and to provide financial flexibility through the subsequent reduction in net debt," AWB CEO, Gordon Davis said in the statement yesterday.
AWB also reached agreement with core banks to refinance $575 million of domestic debt facilities which were due to mature in October.
The company said that the equity raising and debt refinancing would also help it maintain its investment grade credit rating.
In some respects AWB is doing a similar raising to that of Elders, which needed to raise cash and slash spending to stay alive.
Elders was in worse shape than AWB, but the former government-owned wheat group does have some operational problems in its Landmark business and in Brazil, where it has taken heavy losses.
The company took a $120 million goodwill impairment in the value of its Landmark Financial Services unit, which has been affected by lower margins.
Like Elders it is also slicing off or selling other businesses to reduce risk and cash drain.
AWB is in discussions to sell its AWB Geneva division as it shifts to broadening its services and insurance offering under its Landmark brand and cutting debt.
AWB is also winding down its activities in Brazil and will minimise its operations in India.
As part of a wide ranging structural reorganisation and capital strategy, AWB will seek a partner for its Australian Commodities Management business.
Along with the capital raising AWB said it now expects a bigger annual net loss than previously advised with a figure of between $228 million and $259 million for the 12 months to September 30 now mooted.
In August, AWB said it expected to report a net loss of $120 million to $156 million for its 2009 fiscal year, dragged back by the losses in Brazil.
