Capital Raises Weekly Wrap - 20/12/2021

The holiday season is only days away and capital raising markets did not disappoint for the final week of the year. Investor demand for typical raises has dried up significantly which was expected towards this part of the year, although we anticipated this to happen somewhat earlier in the month.

There were 23 companies from 7 different sectors raising via placements across the market, with a deceptive $6.54b raised in the last week. This was almost entirely attributed to a $6.3b placement (96% of weekly raising activity) from CSL Limited (ASX:CSL), which we've reviewed in detail below to gain some insight into the pricing, investor demand, and market sentiment of the offer. Notably, other companies for the week only raised $240m in total, and there's been a substantial drop in company activity in general as we observed 0 capital raises on the 17th of December, a normally rare occurrence.

The average discount rate was 15.13%, a substantial jump from the weeks prior which is consistent with the fall in investor activity that we've noticed. We can attribute this to companies being incentivised to appease investors with higher discount rates in order to assuredly raise funds. We also suspect that going forward into the new year, companies may be forced to raise discount rates further if investor demand remains subdued.

Given that CSL Limited (CSL:ASX) was very much the star player for this week in terms of placement and company size, we've done a detailed review below to verify our hypothesis that attractive raises from reputable companies tend to be unsystematically well subscribed, no matter the investor sentiment and demand. *Placements from 14 December to 20 December

Sector Overview

For a more detailed look at how the ASX sectors are performing check out: https://www.freshequities.com/ASX/sectors 

Placement Overview

The sector rankings remain quite typical with what we've observed throughout the year, as materials remained the frequency leader with 9 placements. We visualised and observed large discount rates across a variety of sectors including the materials, financial, health and industrial sectors.

1. $6.3b Placement from CSL Limited (ASX:CSL) CSL is one of the largest companies in Australia, the fifth largest company by market cap on the ASX (as of 20/12/21), and largely considered one of Australia's most innovative contributors to global research in specialty biotechnology. They specialise in genetic research, medical applications, vaccines, anti-venom and blood plasma derivatives. They successfully completed an institutional placement raising $6.3b to contribute towards funding their acquisition of Vifor Pharma Ltd. The placement was undertaken at an 8.2% discount which is substantially lower than the market average for the week. The final offer price was determined via a variable book-building process in which the lead manager gauges the level of investor demand among other factors to come to a final price. An interesting observation with the placement offer price is that the provided price floor prior to the book build was $273.00, which represents the lowest price the lead manager would use. High investor demand among other factors can push it higher resulting in a lower discount rate. The final placement price was confirmed as $273.00, meaning that there was no increase in the floor price and that investor demand was gauged as appropriate for the commencing price with no increases warranted. This may be a sign that the initial pricing was overly optimistic in regards to investor demand, but it's also worth noting that the discount rate was already quite small to begin with, given the market's tapering demand. Despite all of this, CSL still was able to raise $6.3b at a reasonable discount in a time where investors traditionally disengage with the markets. When comparing this to the rest of the placements from last week, it's clear to see that investors understandably dedicated an unequal amount of attention towards a raise that's considered very attractive from a leading ASX company.

If you have any questions for us, feel free to reach out to us at clients@freshequities.com

90 Days Post Placement Performance

Looking back on the past 90 days to see how companies have performed post placement takes us to the second week of August, with 13 placements undertaken.

Core Lithium Limited (ASX:CXO) was the standout performer for this week, with an impressive 75.81% increase 90 days post raise.

Best Performers

• European Lithium Limited (ASX:EUR) peaked at an impressive 196% 58 days post raise before settling down to a substantial 76% 87 days post raise.

• Core Lithium Limited (ASX:CXO) jumped to a peak of 108.06% 65 days post raise before settling down to a similar 75.81% 90 days post raise.

• Essential Metals Limited (ASX:ESS) sharply ran to a top of 108% 30 days post raise before sliding down to a respectable 36% 90 days post raise.

Worst Performers

• ikeGPS Group Limited (ASX:IKE) started out strong at 12.63% immediately post raise before initiating a slow and steady decline to -15.79% 90 days post raise.

• Rex Minerals Limited (ASX:RXM) bounced between green and red as it started negative before climbing to a peak of 28.33% 24 days raise. It slid for the rest of the 90 days to -21.67% 90 days post raise.

• Brookside Energy Limited (ASX:BRK) fell heavily to end at a substantial -40% 90 days post raise.

Check out our Past Capital Raises page for more information on past transactions. If you want more information on Fresh Equities and how we work, feel free to contact our team at clients@freshequities