What Does New Cash Mean for the Webjet Share Price?

The Webjet Ltd [ASX:WEB] share price is down today, following the settlement of yet another equity raising by the travel company.

The latest round of fresh equity comes mere months after WEB tapped investors for $346 million in April.

The WEB share price has dropped 1.42% or 4.5 cents at the time of writing, to trade at $3.12 per share.

The broader All Ords is down today, with fellow travel company Flight Centre Travel Group Ltd [ASX:FLT] also feeling the squeeze.

Shares in WEB have been on the decline since June.

Fresh outbreaks of coronavirus have cast doubt on the travel industry returning to normal any time soon.

ASX WEB - Webjet Share Price Chart

Source: Tradingview.com

Webjet to use cash to survive doomsday

WEB heavily diluted existing investors’ holding in the company when it raised $346 million back in April.

At the time, Webjet said the funds would last the company through a bleak 2021 calendar year.

Last week WEB announced it would ask investors for another $163 million via an offering of convertible notes due 2027.

The company said that $50 million of that sum would be used to repay off existing debt.

Why did WEB need a fresh set of funds?

Managing Director John Guscic said the first round was purely for the preservation of the business and assuming the worst-case scenario.

The second round is intended to give the company the ability to engage in acquisitions.

The pandemic is likely to have put smaller, private travel companies in a bit of distress.

Meaning there could be a few targets for WEB to snap up.

Webjet said its new funds would allow it to survive a ‘doomsday’ scenario while providing the capital to acquire struggling travel industry rivals.

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The issued notes paint an optimistic picture for the WEB share price.

They are issued at a coupon of 2.5% and mature in July 2027.

Holders can convert them after July next year into shares at a price of $4.09.

An optimistic price given the current $3.12 price tag.

More infections could mean more equity raising

This latest round of equity raising by WEB is far from a knee-jerk reaction.

There was always a possibility of a fresh wave of coronavirus infections.

Mr Guscic said WEB had been preparing for something like this since March and that the additional capital raising had been on the agenda for almost six weeks.

Market regulators are now expected to ease the rules around equity raising to help corporate Australia through COVID-19.

According to Credit Suisse, 35 ASX 200 listed companies have tapped investors since March.

33 of those were trading above the raising price as of Wednesday.

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Regards,

Lachlan Tierney,
For Money Morning


Lachlann Tierney is a writer for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. Recently he has been working with Ryan Dinse. Lachlann is involved in two publications:


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