As reported by Fairfax media over the weekend, aged care provider Estia Health Ltd (ASX: EHE) could soon be set to raise capital, according to 'fund manager sources'.
It's not the first time that media organisations appear to have become aware of a company's plans before they are announced to the market, although at least in this particular case investors have been well aware of Estia's problems.
Fairfax reports that Macquarie has been retained to conduct Estia's fundraising, which could raise up to $137 million in a 1 for 3 underwritten capital raising. Under these arrangements, shareholders would be eligible to subscribe for 1 new Estia share for every 3 that they hold. An 'underwriter' would buy any shares that were not purchased in the offer.
Strengthening the balance sheet
The capital raising, if it occurs, will strengthen Estia's balance sheet, which currently has $254 million in debt, or 'leverage' (debt) of 2.1 times its Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA). After the capital raising, Estia's debt is expected to be a more reasonable 1.6x EBITDA.
That depends on the ultimate outcome and cost of the capital raising however, as well as a number of other factors like size of Refundable Accommodation Deposit (RAD) withdrawals.
Depending on the price of the capital raising, Estia shares could head even lower from here, although the company is currently valued at 10x its underlying Net Profit After Tax, which is not expensive.
Estia could be a potential value investment once the balance sheet has improved, depending on the results of the company's ongoing strategic review and any further changes in the government's approach to aged care facility funding. 'Short sale' interest in the company remains high at 7.5% of total shares on issue, however it's down from 9% in September, suggesting that the company is still viewed as a risky prospect by some.
