Tabcorp looks to raise $600m to weather Covid-19 storm
Australian lotteries and gaming operator Tabcorp has launched an accelerated entitlement offer through which it aims to raise up to Aus$600m (£329.3m/€365.3m/US$436.1m) in new equity.
The operator explained that the continued significant uncertainty regarding the severity and duration of the disruption caused by novel coronavirus (Covid-19) prompted it to reconsider its capital management targets to improve its credit rating and conserve additional capital.
It will therefore now look to reduce its gross debt to EBITDA ratio to between 2.5 to 3.0x, down from 3.0 to 3.5x. The operator’s target dividend payout radio will be reduced to between 70% to 80% of net profit after tax – having paid no dividend for the fiscal year to 30 June.
For that period, revenue declined 4.8% year-on-year to AU$5.22bn, while a $1.09bn non-cash impairment charge resulted in the business posting an $870m net loss for the year.
“The entitlement offer proceeds will be used to pay down existing drawn bank debt facilities and support the move towards the revised target gearing range,” chief executive David Attenborough explained.
“This is expected to strengthen Tabcorp's balance sheet, provide greater financial flexibility in uncertain times, and provide additional credit metric headroom for covenant and rating purposes.
The $600m will be used to reduce its gross debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio to 3.2x, down from the current rate of 3.8x. It would leave the business with approximately $1.50bn in pro forma undrawn bank facilities.
“These measures demonstrate Tabcorp’s commitment to retain its investment grade credit rating,” Attenborough added. “We remain confident that the strength and resilience of Tabcorp’s diversified portfolio of businesses will allow Tabcorp to manage current market challenges and we continue to focus on executing strategies to create value for shareholders.”
The entitlement offer will constitute an underwritten pro-rata accelerated renounceable offer, in which eligible shareholders will be entitled to subscribe for one new Tabcorp share for every 11 shares already held.
Each new share will be priced at $3.25, representing an 11.4% discount on Tabcorp’s closing price of $3.67 on the Australian Securities Exchange (ASX) on Tuesday 18 August.
Approximately 185m new shares will be issued, comprising 9.1% of the business’ existing issued share capital.
Shares will be offered to institutional investors, with the subscription window opening today (19 August), then closing tomorrow. Shareholders will also be given the opportunity to sell their entitlements to other investors.
Retail investors in Australia and New Zealand, meanwhile, will be invited to purchase new shares before 10 September. Retail shareholders may also sell their entitlements on the ASX, during a period starting on 24 August and running until 3 September.