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Australian Equity Raisings Approach Record $80 billion

Australian Equity Raisings Approach Record $80 billion

(10 August 2020 – Australia) Analysts expect the next round of COVID-19 spurred equity raising demand will approach the record A$80 billion issued by corporates to navigate the 2008 Global Financial Crisis (GFC).

Factors that may prevent the equity capital markets (ECM) record being broken include corporate borrowings reset lower in 2020 than in the lead up to the GFC and a broader range of capital funding sources available including debt capital markets (DCM) and hybrid issues. Earnings season will deliver a round of share issues skewed to funding company growth but is unlikely to beat the A$28 billion that has been raised since March, bankers predict.

The coronavirus pandemic has resulted in the upcoming company reporting period becoming more uncertain than usual as sterner lockdowns force CFOs and corporate treasurers to reassess their balance sheets. Over one in two ASX300 companies have already used relaxed capital raising rules to reinforce balance sheets since Q1 2020, in particular allowing placements of up to 25 percent of existing capital.

H2 2020 is expected to be punctuated by more corporates issuing equity for growth, either for merger and acquisition activity (M&A) or to finance projects in infrastructure, mining or other sectors. Low interest rates and strong investor demand may also boost initial public offering (IPO) volumes.

“Companies are likely to over-raise and fund more conservatively. Companies will use the opportunity of an M&A or internal growth option to over-raise and make sure balance sheets are as robust as they can be. We may not see big-bang M&A, but if a company has got a project which needs capital, they will fund more conservatively today than they would have six months ago” commented Macquarie Capital Head of Capital Markets, Hugh Falcon.

"Towards the back end of the first wave of raisings they were a little more about bolstering balance sheets and providing firepower for potential opportunities. We might see more of that activity in the second half, which could transition into M&A funding opportunities as well as resetting leverage levels” said Rothschild Australia Head of Equity Advisory, Stuart Dettman.

"I think making bold predictions about the outlook for capital raisings and around what the future looks like is not well done in this environment, things are changing really quickly. Most companies aren't expected to give earnings forecasts or guidance. For investors, the probability of further lockdown restrictions was likely different even a couple of days ago than it is today” stated JPMorgan's Co-Head of Investment Banking, Jabe Jerram.

"On the demand side, shareholders have been incredibly supportive of equity raisings and have generally seen them as positive rather than negative, an opportunity to shore up companies in which they are invested and allow management teams to position the business more strongly post crisis” Mr Jerram added.

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