I spent a portion of tonight polishing my broken crystal ball to make a guesstimate on what I think the forthcoming raising might look like. Yep, it's coming, imo (sadly)...
Now that WEB has gone live with their raising proposal we can get a sense of where the instos and underwriters are at wrt required placement/offering discounts for a peer in this sector. Yes, not all companies are created or priced equally, but we cannot ignore this yardstick that will be the result of back-office discussions with the instos and underwriters around risk tolerance and the offer pricing that needed to be met before the WEB offer could even see daylight.
The following isn't a forecast per se because I don't do those. It's more of a "what it" exercise to see how close I get - because if I don't publish my estimate before FLT's raising is announced (thinking it will be sometime next week), then the estimate will have never happened. In truth I must admit that my rare and remarkably close
estimate of $1.75 per new share I made two weeks ago for WEB's upcoming raising has emboldened me (probably unwisely) to have another crack with FLT (the announced WEB offer price actually turned out to be $1.70 per new share!). Yeah, I know, something about quitting while I'm ahead, but that would be far too sensible...
I'm gonna go somewhat gutsy(!) and estimate a total raising somewhere in the order of ~$500m (i.e. equity only - no new debt). Yep, it's an outer bound estimate and certainly beyond anything I've read about coming out of the large brokerage houses over the past fortnight, but I'm thinking there will be little point going to the market asking for new equity to cover liquidity requirements to cover
at least the end of this calendar year (and some). The key theme here is "solid buttressing", imo. I'm going with a price of $5 per new share, meaning a ~100m new shares issued - basically doubling the existing SOI.
My guess is that the raising it will take the form of either:
- a combined insto placement (say, $150m) + accelerated pro-rata non-renounceable rights issue (say, $350m on, say, a 7 for 2 basis) - i.e. a similar form to WEB's raising, but with different numbers; or
- it might simply be a vanilla 1:1 non-renounceable rights issue with no insto placement (doubtful).
I'm leaning heavily toward the first scenario as being more likely.
On the face of it this might seem to amount to a 50% dilution, but the answer is both "yes" and "no":
- "yes" if you're not in a position (or prepared) to participate in any new rights issue; but
- "no" if you are willing and able to participate in any new rights issue to the full extent possible - although you would likely be sightly diluted to the extent of any insto placement that would occur immediately prior to the RI (i.e. by ~10% using the above insto placement/RI numbers).
On these numbers (remember, they're nothing more than an educated guess at this stage) the notional/theoretical post-placement, ex-rights issue price would be somewhere in the vicinity of ~$7.45* per share all-up, after the dust settles (adopt $7.50). An offer price of $5.00 per new share would therefore represent a discount of ~33%. (There's no getting around the need for a decent offer discount in this current market - WEB's discount is 32.2%.)
Readers should note that all these numbers heavily rest on the original estimate of $500m to be raised. If that turns out to be wrong and a materially different amount is raised, then the offer price per share and the number of new shares issued is also likely to move around.
Finally, I appreciate that this exercise might be hard to swallow for some holders and I'm sympathetic to your pain. I have plenty of battle scars and I know precisely what it's like, which is why you might find my approach to be very different to other non-holders you might come across. Before anyone grabs their pitchforks, please understand that I have not created the current circumstances. Also, remember that FLT is currently suspended, so there is
zero chance of this post influencing the SP (like anything written on HC makes a jot of difference with mid-caps - not). This analysis is simply one interpretation of how the company is likely to respond to current circumstances, so it can survive and prosper moving forward.
Now, having strapped it to the outer reaches of the lowest limb, let's see how it goes in the wind.
Z
(*Calcs: Notional $7.45/share all-up, after the dust settles = (~$1,002m MC based on last closing price + $500m freshly raised cash) / (101m previous SOI + 100m new shares issued).)
(20min delay)