Shares of Westpac Banking Corp (ASX: WBC) soared over 3.2% in early trade today following a five-day halt in trading of its shares on the ASX.
Along with last week's decision to raise a hefty $3.5 billion from shareholders the country's second-largest bank released some unaudited profit figures aimed at reassuring investors who were thinking of participating in the offer.
While the 2015 profit results could perhaps be described as 'slightly positive', Westpac's institutional shareholders have wasted no time taking part in the capital raising that allows one new share to be bought at $25.50, for every 23 currently held.
Adding to today's positive market sentiment was news the institutional component was taken up by 95% of eligible firms. The remaining 5% was auctioned at the shortfall bookbuild, valuing Westpac shares at $30.
Since all new shares issued under the capital raising will NOT be entitled to the final dividend payment, the shares issued to institutions will trade under the ASX code "WBCN" until Westpac's "ex-dividend date", expected to be 11 November 2015.
The retail component of the capital raising will open this Friday (23 October 2015) and close Wednesday 11 November 2015.
Should you participate?
As with any offer to buy new shares, shareholders considering a purchase of Westpac during the capital raising need to consider two things:
- Are the shares well priced? After all, there's no point paying $25.50 for new shares (despite being cheaper than today's market prices) if that price is not a good one to pay.
- Are you overexposed to the banking sector and the Australian economy? After years of stellar growth, major bank stocks take up a large part of the S&P/ASX 200 (ASX: XJO) (Index: ^AXJO) and many investors' portfolios. If the local economy slows, it could have disastrous implications for your investment returns.
I've previously stated that each of the big banks – Westpac, Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd. (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA) — appear expensive at today's prices.
