13/05/2020 - 13:06

AFG announces $60m equity raising

13/05/2020 - 13:06

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Australian Finance Group has announced a capital raising to strengthen its financial position ahead of an expected softening of the housing loan market and to support the growth of its subsidiary AFG Securities.

AFG announces $60m equity raising
AFG has today halted trading in anticipation of releasing an entitlement offer and institutional placement

Australian Finance Group has announced a capital raising to strengthen its financial position ahead of an expected softening of the housing loan market and to support the growth of its subsidiary AFG Securities.

The fully-underwritten $60 million equity raising will comprise an entitlement offer of $45 million complemented by a $15 million institutional placement.

It has been priced at $1.15 per share, a 17 per cent discount to the stock’s last traded price.

It follows a wild ride for the stock over the past year; it rallied strongly to an all-time high above $3 in February before collapsing to a low of 95 cents in March. 

AFG said it anticipated a softening of settlement volumes and therefore upfront commissions in the coming months, following strong growth in the four months to April.

The expected softening was attributed to the slowdown in the economy, higher unemployment, lower house prices and sales volumes.

It said the general market consensus was for national house prices to fall by 10-15 per cent.

If this occurred, AFG said it did not expect material loan losses.

However, the group said it would require additional capital for AFG Securities, which has a $2.85 billion loan book.

Access to wholesale funding markets had been adversely affected by COVID-19 uncertainty, and AFG anticipated the cost of funding would increase by about 15 basis points (or 0.15 percentage points).

AFG chief executive David Bailey said the company was taking decisive action to reinforce its balance sheet and enable the company to navigate market uncertainties.

He explained that the growth of AFG Securities was a key pillar in the group’s diversification strategy.

“We are undertaking this equity raising to further strengthen our capital position in AFG Securities to remain a long-term market participant and support its growth beyond COVID-19,” Mr Bailey said.

“AFG Securities is committed to continuing to play its part in delivering choice and competition to Australian borrowers.”

Mr Bailey said additional capital would also allow the company to continue to explore strategic opportunities to further diversify earnings.

Shifting focus to operational innovation and improvement, Mr Bailey added that the extra capital would also assist AFG to ensure its brokers were at the forefront of technology to support their customers, make their workflows more efficient and accelerate the enhancement of the company's digital platform”.

When the equity raising is complete the company expects cash reserves of $112 million and no corporate debt.

Macquarie Capital is lead manager and underwriter to the equity raising, with Euroz Securities and Morgans Corporate appointed as co-managers.

 

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