Goodman Group options disappoint: securities tumbleFont Size: Decrease Increase Print Page: Print John Durie | June 16, 2009 Article from: The Australian GOODMAN Group stock copped another hiding on the bourse today because it continues to issue options at the expense of existing shareholders to help raise funds.
The Goodman stock price fell 11.2 per cent to 43 cents a share after terms of a $200 million deal with China Investment Corporation were revealed, showing its debt will convert into options with a strike price of 40c a share.
Earlier, the company did a similar deal with Macquarie to issue options at 30c for a $285m capital injection, which will be convertible into 11 per cent of the company with CIC converting into 8 per cent.
On the same day the Asciano equity raising was increased from $1 billion to $1.35 billion, it is confusing to say the least that Greg Goodman is mucking around with under priced option deals.
There was disappointment also that he didn’t proceed with a larger capital raising to rid himself of debt issues once and for all to get on with the job of running the company.
The difference between the two capital raisings is obviously in market perceptions of the two companies and while the Goodman paper may look cheap, when you consider not so long ago it was trading at three times the price may, it is closer fair value.
As a rough guide on Goldman numbers, a $1 billion raising at the price the options issues by Goodman will cut leverage from 41 per cent to 30 per cent, net tangible assets in half to 58c and dilute earnings per share by 37 per cent from just over 8c a share to 5.3c.
The problem with Goodman Group is no-one is too sure about the sustainability of earnings it gets from its funds management and development income model.
In this climate the income potential doesn’t look great.
Greg Goodman under took this morning to ensure existing shareholders got a fair say in the next round of capital raisings, which will most likely be by way of a rights issue .
He now has his cornerstone investment in place, via Macquarie and CIC, and will work on phase two.
What is hard to fathom is just why he saw the need to anger existing shareholders in phase two.
The answer is maybe that faced with pressing bank deadlines, he needed to get the money how best he could and didn’t have any other choice.
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