The Webjet Limited (ASX: WEB) share price won't be rebounding with the S&P/ASX 200 Index (ASX: XJO) on Thursday.
This morning the online travel agent requested a trading halt prior to the market open.
Why is the Webjet share price in a trading halt?
Webjet requested the trading halt this morning pending an announcement in relation to a capital or equity raising.
The company's shares will remain in the halt until the earlier of the release of an announcement in relation to the outcome of the proposed raising, or the commencement of trading on Monday March 23.
No details have been released as of yet, but given the tough trading conditions facing it and rivals Corporate Travel Management Ltd (ASX: CTD) and Flight Centre Travel Group Ltd (ASX: FLT), the raising is likely to be undertaken at a reasonable discount to its last traded price.
On Wednesday Webjet's shares closed the day at $3.76, which was down a disappointing 78% from its 52-week high of $17.19.
Why is Webjet raising funds?
With the travel market facing unprecedented challenges due to the closing of borders around the world, lockdowns in many countries, weak consumer sentiment, and social distancing initiatives, travel agents have experienced a collapse in bookings this month.
And while Webjet is trying to cut costs materially to offset some of the impact, there's only so much that these initiatives can offset. Especially given the uncertainty of how long these restrictions will last.
It could be many months before things return to normal and I suspect many travel booking companies will fail to survive this downturn.
By successfully raising funds, Webjet should be in a position to weather the storm and come out of the other end in a stronger position with less competitors.
