Secondary capital raisings ease on hope of reopening

New equity raisings on the ASX from existing companies almost tripled to $13.3bn in April compared with the same time last year.

The picture for initial public offerings is the reverse, with the total amount raised by new listings down substantially.

New equity raisings on the ASX from existing companies almost tripled to $13.3bn in April compared with the same time last year, as companies rushed to raise capital on fears of the impact of the COVID-19 crisis, according to figures released on Wednesday.

But ASX Ltd’s executive general manager of listings and issuer services, Max Cunningham, said the rush for new secondary capital raisings had slowed recently, as initial liquidity fears “abated somewhat” as the federal government outlined its plans to start reopening the economy.

The ASX has seen 130 new secondary equity raisings since mid-March, with eight deals raising more than $1bn.

These included a $3.5bn by National Australia Bank, $1.4bn by Ramsay Health Care and $1.3bn by insurance group QBE.

“The market was dealing with a high level of uncertainty and facing some high volatility in equity prices,” Mr Cunningham told The Australian.

“That phase was about enabling companies to raise a sufficient amount of capital to trade through and give them liquidity support and maintain solvency for their shareholders through this crisis,” he said.

“At the moment it feels as if this has abated somewhat, but time will tell how long that sentiment holds,” he said.

Talk by the federal government this week about getting companies back to work appears to have significantly improved market sentiment.

Mr Cunningham said the new secondary capital raisings had mainly been in the mining and financial services sector.

But he said there had been no new raisings in some other sectors, such as the technology sector. The $13.3bn in secondary capital raisings on the ASX in April was 275 per cent higher than the $2.3bn raised in April last year and well up on the $4.7bn in April 2018.

New secondary capital raisings on the ASX for the 12 months to the end of April were up by 33 per cent to $48.6bn. This is much less than the $99bn in secondary capital raised by ASX listed companies in the 2009 calendar year, in the wake of the global financial crisis.

The rush of new secondary capital raisings was made easier by a temporary relaxation of ASX rules, including raising the limits for placements from 15 per cent to 25 per cent of issued capital and relaxing rules around renounce­able rights issues.

In temporary changes, which will operate until the end of July, the ASX is also allowing companies to have trading halts of four days rather than two, to help work out their fund raisings.

But the picture for initial public offerings is the reverse, with the total amount raised by new listings down substantially.

April saw seven new companies list on the ASX, compared to six in April last year, but these were all much smaller IPOs with the total amount of money raised plunging from $1.2bn in April 2019 to only $97m in April this year.

The total capital raised by IPOs on the ASX in the 12 months to the end of April was down by almost 70 per cent to $10.4bn.

“IPO capital raisings have almost ground to a halt,” Mr Cunningham said. “It is materially slower than it has been.

“There is always greater risk for investors with an IPO, as compared to investments in existing companies.

“IPOs also rely on things such as road shows and investor meetings, which are difficult to do ­virtually.

“We continue to have optimism about the medium-term outlook for IPOs, but we are certainly seeing a slowdown at the moment, which is likely to continue through this quarter and next.”

The figures show the cash market value of trading on the ASX was up to $153bn in April, 60 per cent higher than April last year. On-market daily average value was up by 57 per cent to $6.8bn, while the average daily value per trade was just over $4000 compared with $3417 in April last year.