This week, Superloop Ltd (ASX: SLC) announced it will be conducting its second capital raising in less than nine months. Is it a long term buy or is it quickly turning into a money pit?
About Superloop
Superloop is an independent provider of connectivity services within the Asia Pacific metro region. It operates a network of fibre and wireless assets in Australia, Hong Kong and Singapore and aims to benefit from the exponential growth in data consumption.
Capital Raising
Superloop is planning to raise $90 million via a fully underwritten institutional placement of $55 million and a fully underwritten 1 for 6 non-renounceable entitlement offer raising $35 million. The offer price of $0.82 represents a steep 18.8% discount to the current share price.
Management stated that the funds will be mainly used for the purpose of paying down debt. Raising capital to pay down debt is not something you want to see becoming regular practice as a shareholder because it can be a strong indicator of poor capital management. A capital raising dilutes the ownership of current shareholders who do not participate and this is exasperated when the offer price is significantly lower than the current market price, as it is here.
You can learn about what a capital raising is in the video below:
Management Commentary
Superloop’s Chairman, Michael Malone, said: “Superloop has invested over $256 million in fibre network assets, and continues to make progress in monetising the value of those assets. The support from Superloop’s senior lenders has been invaluable, but it is necessary and appropriate to restructure those facilities to provide a platform for Superloop to continue to access funding on favourable terms to support its monetisation strategy.”
“This capital raising achieves that objective, reducing the senior debt with a restructured five-year facility that provides funding for the incremental investment on Superloop’s core network,” he added.
A Tough Year
This announcement comes on the back of an earlier capital raising in February where the company raised over $30 million at $1.25. Whilst no great surprise, this latest money grab will be frustrating for long-term shareholders who will need to decide whether they have enough belief in the long-term growth story to stump up the cash, or whether it might be time to pull the pin.
Trading north of $2 less than 12 months ago, the share price has been in a downward trend ever since. It will likely fall back below $1 and drift towards the offer price of $0.82 when shares start trading again this week.
Would I Take Up The Offer?
Given I don’t own shares in Superloop, it’s hard to say what I may or may not do. But two dilutive capital raisings in nine months would be really testing my patience. I would need to be confident that management could deliver on their long-term growth strategy to warrant participating.
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At the time of publishing, Luke has no financial interest in any companies mentioned.
