Aged care operator Estia Health (EHE) has joined the likes of QBE, Metcash (MTS) and Qantas (QAN) in stinging shareholders in a backs to the wall capital revamp.
Estia yesterday confirmed one of the worst kept secrets in the market and revealed a capital raising – this time totalling $137 million and dropped its interim dividend in a bid to bolster its weakened finances.
Crunching shareholders by dropping dividends has been the path of many companies – lately QBE, Metcash and Qantas (which has restarted capital management for shareholders as its results have rebounded off the back of low oil prices).
Trading in Estia shares was halted yesterday at $2.68 to allow the issue to start. if raised in full, the $137 million will be equal to around 26% of Estia’s weakened market value of around $523 million.
Macquarie Capital, which conducted a strategic review of the embattled operator, is handling the raising which it will also fully underwrite.
Estia has consistently denied or avoided the issue of a capital raising and has gone out of its way to try and prove that its finances remained solid. But the market was not convinced there was no surprise when the issue was revealed yesterday.
Estia had come under closer scrutiny in recent months as its net debt approached its borrowing ceiling. But even that saw defensive comments from the company about the strength of its financial position.
With that Macquarie review now ended, Estia’s chairman Pat Grier is stepping down to become a non-executive director, and fellow board member Gary Weiss will take the chair from the start of next year.
The $136.8 million raising is being offered at $2.10, a 21.6% discount to its closing price last week of $2.68.
Institutional investors are expected to account for around 55% of that total, with the remainder being offered to the retail register who may not support the issue given the sharp fall in the share price this year.
Aside from $5.8 million in transaction costs, the raising is devoted to reducing Estia’s borrowings.
Core debt will be cut to $85.5 million while net debt will be reduced to $143 million.
“Today’s announcements put Estia on a fresh footing with a strengthened balance sheet,” CEO, Norah Barlow said yesterday.
"We will continue with our greenfield and brownfield development pipeline and refurbishment opportunities program, but under a more conservative business plan and growth agenda.
"We have also identified some non-core assets that will be divested and we will continue to review our portfolio to ensure that we have the right mix of assets going forward."
Along with its rivals like Japara Healthcare and Regis Healthcare, Estia has come under pressure this year after the federal government announced cuts to the sector.
Already Estia has unveiled two earnings downgrades while its founder Peter Arvanitis and other key staff including a previous chief executive left the company.
