"The Worst Capital Raising Ever"Well, I've seen worse. In fact I saw a worse one this morning (NGS, for reference). But all the worse cases I've seen are in companies that are experiencing some form of stress. This is absolutely not the case with Droneshield, which had nearly $60 million cash at bank when it announced the raising. I support this action and will participate as well, although I hold little hope of any substantive result. From my perspective the key issues are:
Stealing from their own investorsI don't quite get how the Droneshield supporters here aren't screaming their lungs out about this. You all have shares that were trading at well over $1. You can see what a
massive appetite the institutional and sophisticated investors have for Droneshield shares. Without this capital raise, who would they buy those shares from? Give up?
You! Or if not you, then somebody else taking profits, and in doing so chasing your share value even higher. But instead, the company has completely bypassed you and handed out an unbelievable quantity of heavily discounted shares. And then they had added insult to injury by offering a pittance to their own investors.
Poor capital managementAs I've said before, this raising smacks of incredibly poor capital management discipline. The company's original intention to raise $55 million clearly indicates the company's management saw the need for a certain amount of working capital. Let's say $35 million, plus $15 million for contingencies, and $5 million for costs. What then is the additional $60 million for? The investor presentation provides no clues. Nothing in the presentation represents any kind of planned or even opportunistic CAPEX project. It's all OPEX.
Prejudicial toward existing holdersIf, as you say, the company is primarily held by retail investors then to slant the capital raising so heavily in favour of non-retail investors is deeply unethical. There is no rationale for distorting the capital structure to the detriment of existing holders in the way that has been done here. As you pointed out, there are plenty of ways to allow existing holders to have first bite at the cherry. A renounceable rights offer is an excellent way to allow existing holders to take up as many shares as they want, or to obtain some recompense for dilution by selling their rights to those who want them. This sort of plan allows new holders to enter on the share issue by buying the rights, and is open to both retail and institutional/sophisticated investors equally. The underwriters are then able to auction the shares for any rights that are not exercised.
Not justified by lack of appetiteExisting holders demonstrated their enormous appetite for Droneshield shareholders in the previous share price plan. And if the comments here from
@Quesoche ,
@BPAA ,
@swils ,
@oke ,
@TheAnalyst007 ,
@MadDocker et al are anything to judge from, that appetite is stronger now than it was a year ago. There is absolutely no rationale for
not giving these posters a decent chance at snapping up the stock. They'd be remortgaging their houses, doing delivery rounds and ride sharing, even selling undesirable relatives on eBay for cash to plough into this company!
Not justified by urgencyIt can't be denied that a retail share purchase plan is more expensive to run and takes longer because of the requirement to provide adequate notification, the company has provided absolutely no reason to believe that time is of the essence. As previously mentioned, the company had almost $60 million in the bank. The company also made a very clear point about the shortness of the order/delivery/payment cycle for the equipment, which is ideal for setting up a short term working capital facility with a financial institution. Which financial institution would not have been tripping over its own feet to provide a $10 million overdraft facility for a company with $60 million in cash and a $500 million twelve-month project pipeline on top of incidental and repeat orders?
So yes, I'll write some emails and lodge some disgruntlement because giving up is worse than wasting time. But given that the shareholders voted massively in favour of the board's actions at the AGM, it's a bit hard to argue that that the board is acting against the interests of shareholders.
(20min delay)