The Cardno Limited (ASX: CDD) share price has crashed down 45.7% in early trading to $1.64, after resuming trading following a capital raising.
The consulting and environmental services company raised $50 million from its institutional rights offer, and is now offering retail investors the chance to buy additional shares at a price of just 1.00, which is expected to raise another $28 million.
Shareholders can buy 1 new share for each 2.175 shares they currently hold, but the offer is non-renounceable, so if they choose not to cough up more capital, their existing holding will be heavily diluted. Non-renounceable means shareholders don’t have the option of selling their rights on market like they would if the offer was renounceable.
The rights issue is being conducted to reduce net debt. At the end of June 2015, Cardno had $396 million of borrowings and $85 million in cash. The rights issue, combined with the sale of the Cardno ATC division will result in the company having cash of $231 million, and I expect that will be used to pay down the debt.
The big fall in share price today is due to the huge discount price ($1.00) existing shareholders can buy shares at – well below the $3.02 Cardno’s share price closed at before it went into a trading halt and the capital raising.
Where to from here?
Cardno says it expects to see earnings before interest, tax, depreciation and amortisation (EBITDA) of between $65 and $70 million for the full year 2016, including a number of one-off expenses.
The company’s America’s division is struggling, particularly in oil and gas, mining and Latin American businesses, and that is driving the company’s group results. That’s unlikely to improve anytime soon.
Cardno looks likely to get taken over at some stage with private equity firm Crescent Capital expected to hold 40% or more of the company post the capital raising. With tough times set to continue, investors might want to steer clear.