Concerns about the dilutive effect of equity raisings on share prices have gone out the window as investors take advantage of cheap investment opportunities.
A raft of companies have turned to equity raisings in the past six months amid tight debt markets and pressure from banks to reduce debt.
Some $10.77 billion was raised in Australia in the first fortnight of May, up from $3.25 billion for all of April, research this week by consultancy Dealogic shows.
On Monday alone, Automotive Holdings Group successfully raised $34.4 million through an institutional share placement, while Billabong International and GrainCorp rattled their tins for $290 million and $60 million, respectively.
This was followed by equity raising announcements from Aspen Group ($82.4 million), APN News & Media ($99 million) and Hastie Group ($77 million).
The companies will use the proceeds primarily to reduce gearing by cutting debt, but this hasn't impressed the market.
Billabong took a 20 per cent share price hammering on Wednesday on news institutions had taken the lion's share of the offer, raising $230 million but leaving less for retail investors.
"Generally, the issues are fairly well subscribed,'' CMC Markets analyst David Taylor said.
Austock Securities senior client adviser Michael Heffernan said institutional placements had become the most important form of funding for companies.
He said equity raisings were also being supported by small shareholders seeking to profit from short-term trading.
Smaller investors had gradually increased their appetite for risk, with some signs of better economic recovery on the horizon and attracted by the substantial discounts to the prevailing share price.
"Look at BlueScope Steel,'' Mr Heffernan said. "They're offering at $1.55 and are currently trading at more than $2, so a lot of investors think BlueScope is not that flash as far as its future is concerned but can sell the shares ... accept the offer at $1.55 and at least make 45 cents a share profit.''
Mr Taylor said many smaller shareholders still preferred to back companies that planned to use their capital raisings for growth projects.
"The ones that aren't just for deleveraging tend to be oversubscribed and the others ones (equity raisings purely to reduce debt) are taken up well by institutions, not so much by retail investors,'' Mr Taylor said.
"Santos raised $3 billion so they could invest in LNG (liquefied natural gas) offshore and the market loves that sort of stuff.
"Shareholders believe it is a good thing to be investing in and got right behind Santos.
"But when it sees companies raising capital just to reduce debt so the banks are happy - usually at a significant discount of 20 to 30 per cent off the last traded price - the market doesn't respond very well to that.
"It's very short term and is going to do nothing for shareholders.''
Both analysts said equity raisings by media companies were the least appealing because their long-term outlook was uncertain, given falling advertising revenues and changing industry landscape.
"In the energy space it has been relatively well received but in the media space, not so much,'' Mr Taylor said.
"A lot of media companies have used to debt to make acquisitions in the past 12 months and now that ad revenue has fallen and their balance sheets are looking very, very ordinary, they've needed to raise capital in order to refinance.
"The shareholders do not like that at all and they've suffered as a result,'' Mr Taylor said. ``In the energy sector, it's a case of companies taking advantage of the increasing price of oil recently and the move to diversify away from oil and into LNG.
"I think the success of an equity raising depends what sector a company is in, how the investors perceive the capital is going to be used, and whether there is some long-term value there or not.''
Mr Heffernan said he had never before seen such a flurry of equity raisings.
"No one wants to be the last one left without a raising,'' he said. "I just find it really ironic that last year everyone was trying to raise debt money and couldn't get it - your Allcos, your ABC Learning Centres - and suddenly, everyone is raising equity.
"The companies have forsaken the usual matra about diluting existing shareholders. It's been thrown out the window.
"The dilution effect is not getting any currency at all at the moment.''
Mr Taylor said he expected more equity raisings in the next six months.
"They're looking to refinance, they're looking to shore up their balance sheet in order to get extra funding because the banks are being more prudent and the companies just don't have any other choice but to ask shareholders for that additional cash.''
AAP
