The devastation wrought on the Australian stockmarket by the coronavirus pandemic has made it impossible for companies to raise fresh money, with two bank funding injections totalling at least $2.5bn called off.
Billions of dollars in other attempts to raise money have also been cancelled as investors close their wallets after two wild weeks of trading erased more than a year’s worth of gains.
“Effectively, the window to raise capital is closed,” said fund manager Geoff Wilson of Wilson Asset Management, who himself this week canned a plan for one of his funds to buy between $10m and $20m worth of shares back from investors.
Asked if he thought it would open again any time soon, he said: “No.
“It would only be the desperate who would be raising [money] at the moment,” another market observer said.
On Thursday evening, after the biggest one-day fall on the Australian market since 1987, NAB abandoned plans to raise about $2bn by selling investors notes – financial instruments that pay a steady flow of coupons.
It’s believed the decision was taken following what sources said were “robust” discussions by the NAB board.
Smaller rival Macquarie followed suit on Friday morning, as the market was again plunging, yanking a $500m note issue of its own.
The notes, known as hybrids because they have some of the characteristics of shares and some of the characteristics of debt, carry greater risk than either because they are the first to take losses when things go wrong.
But they are extremely popular with Australian mum-and-dad investors who have confidence in the strength of the country’s banking sector because they provide relatively high returns.
The prices of both were set last month, before the virus smashed the market. But after the falls in the share prices of the banks – on Friday night, NAB’s share price was down by a third since 20 February and Macquarie’s down almost a quarter over the same period – those prices became wildly unrealistic.
Sources said that if the NAB and Macquarie notes had been issued at pre-crash values then their prices would have immediately crashed once they began to trade, making investors angry and leaving the banks looking like they were under financial pressure.
“If they’d proceeded with it they would have been slaughtered when they came on,” one market source said of the NAB notes. “Obviously it’s bad for the investors but it’s also really bad for NAB.
“Which bank wants to issue capital at a massive discount?”
Sources say figuring out new prices for the notes was too hard because the markets were too volatile – a point proven on Friday when, after dropping 8% in early trade, the benchmark ASX 200 rallied to finish the day up more than 4%.
Also on Friday, Pengana Private Equity Fund abandoned a $470m capital raising, telling the market that “current market volatility makes it impossible to conduct an orderly process”.
The previous day, corporate lender Metrics Credit Partners handed more than $340m back to investors after falling well short on its hopes to raise up to $640m and list a fund on the ASX.
Wilson said the market as a whole was in a “fear phase”.
“This is the steepest fall we’ve ever seen in the market,” he said.
He said it combined the speed of the falls experienced in the crash of 1987 with the relentlessness of the 2008-09 global financial crisis, when markets around the world fell day after day after day.
“This is the steepest fall we’ve ever seen in the market,” he said.
“From the start of the bear market [in 1987] to the bottom, that was about 50% and it took seven weeks.
“This has been faster.
“We’re a month in and we’re down something like 30%.”
