A long, growing list of Australian companies have raised equity capital during the Coronavirus (COVID-19) pandemic. Most commentary on these offers typically focuses on whether eligible shareholders should subscribe, rather than the company’s long-term prospects.
Emergency capital raisings can provide short-term gains for eligible active investors who trade stock bought in a heavily discounted offer. Such offers can also weigh on a company’s long-term Return on Equity (ROE), dilute small shareholders and destroy value.
The trick is finding high-quality companies that raise capital during market shocks to grow, rather than backing those needing funds to survive. A heavily oversubscribed capital raising can be a good sign as it shows investor confidence and removes funding risks for the company.