Arrium Ltd (ASX: ARI) yesterday came out of a trading halt to announce the raising of a minimum $754 million. The internationally diversified mining and materials company was spun out of BHP Billiton Limited (ASX: BHP) in the year 2000.
Why this is a shock raising?
The company had continued to pay dividends from 2009 until less than a month ago. Just by avoiding these payments it could be argued that the raising would have been unnecessary.
The company has a market capitalisation of less than $900 million, so it is seeking to raise nearly its whole market value.
What you need to know about the renounceable entitlement offer:
1. There are two parts to the offer. A 15% institutional placement of $98 million and a $656 million entitlement offer for ordinary shareholders.
2. The company has been fair and equitable in allowing existing shareholders such a large portion of the raising. They may either:
Take up the rights and buy more shares.
Sell the rights on market.
Renounce them and be paid via a book build.
3. The issue has been priced at 48 cents which is a 26% discount to the 65 cents price prior to the suspension of trading.
4. The issue is fully underwritten. Thus, should the money not be raised via both the institutions and shareholders, the underwriters will ensure that Arrium will still raise the full amount of the funds.
In my opinion, after considering individual circumstances, many shareholders will be more comfortable in holding shares in a company with a net debt of around $980 million as opposed to $1.7 billion prior to the raising. However, I am positive on the outlook for iron ore, as evidenced by an article on Rio Tinto Limited (ASX: RIO) penned yesterday entitled: "Why Rio Tinto Limited has entered the buy zone."
