Australian companies race to raise capital, share placements top $6 billion

HONG KONG (Reuters) – Australian companies have raised more than A$10 billion ($6.29 billion), the second highest on record, from selling new shares this year as they rush to raise funds as a buffer against the economic downturn triggered by the new coronavirus.

The mostly deserted city centre is seen following the implementation of stricter social-distancing and self-isolation rules to limit the spread of the coronavirus disease (COVID-19) in Sydney, Australia, April 16, 2020. REUTERS/Loren Elliott

It makes Australia the most active capital market in the Asian region so far this year excluding China.

Refinitiv data on Australian equity capital market activity since the start of 2020 shows 152 deals worth A$10.26 billion, surpassed only by the figure of $11.9 billion raised during the same period five years ago.

“We have seen extremely active debt markets globally, particularly in the U.S., where the Fed has injected massive liquidity via a broad spectrum of measures,” Goldman Sachs (GS.N) Australia’s head of equity capital markets, Sarah Rennie, said.

“Australia doesn’t have the equivalent depth of debt markets and so I think Australian corporates have turned more quickly to equity investors for support.”

Australia’s economy, supported by its natural resources sector, has proved resilient to previous downturns, but analysts predict it is on course for its first recession in three decades as entire sectors of the economy are shut to stop the spread of the coronavirus.

Bankers say they expect demand for the equity deals from investors will be sustained in Australia as companies seek funding, even as global financial markets remain volatile.

The Australian regulator, ASIC and the Australian Securities Exchange (ASX) announced in mid-March companies would be temporarily able to issue placements worth 25% of their shares on issue, up from a previous cap of no more than 15%.

RBC Capital Markets Head of Equities Karen Jorritsma said the capital raisings had been well supported by investors.

“Equities still look relatively favourable from an asset allocation point of view and I think the appetite for deals will continue in the near term, but corporates are better to be first than last to avoid being caught up in deal fatigue,” she said.

The Refinitiv data showed the most active markets outside Australia for companies raising cash included India, which has raised $5.9 billion, while Japan has raised $3 billion.

The Australian capital raisings have been led by insurer QBE (QBE.AX), which raised A$1.2 billion this week, Oil Search (OSH.AX), which tapped the market for A$1.16 billion and Cochlear (COH.AX), with A$880 million, stock exchange filings from those companies showed.

“I wouldn’t expect the activity levels of the past few weeks to be maintained over a long period, but I do expect that there will be some more of these raisings to come, especially in the lead up to debt covenant testing,” Herbert Smith Freehills partner Philippa Stone said.

Reporting by Scott Murdoch; editing by Barbara Lewis

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