Transitionary’ deals keep wheels turning

01/04/2009 - 22:00


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THE recent upswing in the stock market may have some companies breathing a sigh of relief as the scramble for funding reaches a frenetic pace.

Transitionary’ deals keep wheels turning

THE recent upswing in the stock market may have some companies breathing a sigh of relief as the scramble for funding reaches a frenetic pace.

About 110 Western Australian companies have headed to the market to raise capital during the March quarter, with amounts ranging from $78,000 to the monstrous $4.7 billion placement and rights issue undertaken by Wesfarmers.

Despite the varying amounts, the reasons for capital raisings were similar with most needing funds for 'working capital' or to reduce the company's debt position.

Overall, WA stocks planned to raise just more than $5.5 billion during the quarter, with the final total about $600 million shy at time WA Business News went to press.

The surprising strength in capital raisings this year is also reflected in national figures, showing that total capital raised during January and February was $12.5 billion, an increase of 178 per cent on the previous corresponding period.

As has been the pattern in recent years, Patersons Securities and Euroz Securities battled it out for the largest number of capital raisings carried out during the quarter.

Each firm managed seven published deals, with Euroz firmly in the lead in terms of dollar value. The broker managed $361 million worth of capital raisings, compared to Patersons' $37.5 million.

While the increased number of capital raisings has surprised market observers given the current economic volatility, the lower amounts targeted by companies are a cause for concern.

KPMG executive director corporate finance Adrian Arundell said a lot of businesses suffering from financial stress were undertaking smaller, "transitionary" capital raisings, with the funds raised used to keep companies ticking along.

"You can just look at some of the amounts raised and it's not going to last very long," Mr Arundell said.

"So [the funds] really are tying businesses over for another six months in many instances, and hoping that the market will show some liveliness over the period of time."

Of the 110 companies raising capital in the March quarter, 21 stocks were seeking less than $1 million.

In Western Australia, where resource stocks dominate the bourse, most of the companies on the hunt for funds were explorers.

"There's always a need for capital," Patersons head of corporate finance Aaron Constantine said.

"You saw in January and February some of the larger companies undertaking large capital raisings that were structured to succeed because they had to, and so they were deeply discounted in pricing and most of them got their money.

"Small and mid-cap companies aren't any different, it's just a whole lot harder for them to get the money."

During the three months to the end of March there were various warnings to shareholders saying if funds were not obtained in a timely manner, the commercial viability of a company would be in serious doubt.

One of the more recent warnings came from Mirabela Nickel, which in the end raised almost $178 million.

Now the spotlight has shifted to fellow nickel company Albidon, which at time WA Business News went to press was in a trading halt pending final approval over a funding deal from Chinese company Jinchuan.

"The challenge you've got is reconciling the interests of clients who've got the money and are fearful for their capital, and the corporate who needs the money but probably still remembers the share price being a lot higher," Mr Constantine said.

"That really becomes challenging in the whole process, because the market right now is all about price, you know, what's the real value.

"And the market is still working those things out because it has been so volatile."




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