The Bank of Queensland (ASX: BOQ) has today announced a $275 million capital raising as the bank's shares were placed in a trading halt. Bank of Queensland is seeking to top up capital to strengthen its balance sheet, increase its buffer above APRA's Common Equity Tier 1 ratio, and provide additional capacity to implement strategic priorities.
What are the terms of the BOQ capital raise?
The capital raise will take place via a fully underwritten $250 million institutional share placement and a non-underwritten $25 million share purchase plan. Shares under the placement are expected to be issued at $7.69–7.78 per share, a discount of 10–11% to Bank of Queensland's closing price on Friday of $8.64 per share.
Approximately 32.5 million shares will be issued under the share placement, equivalent to 8% of Bank of Queensland's existing share capital. Under the share purchase plan, eligible shareholders will have the opportunity to apply for up to $30,000 of new shares. Eligible shareholders who fail to apply for new shares will effectively be diluted due to the issue of new shares under the placement.
The placement and share purchase plan are being undertaken to further strengthen the bank and accelerate its strategic transformation. The strategic transformation aims to simplify the business, delivering cost efficiencies and productivity gains to put Bank of Queensland on the path to sustainable and profitable growth. An update on the progress of the strategic transformation is expected in February next year.
Does this impact BOQ's FY20 outlook?
No change has been flagged to Bank of Queensland's FY20 guidance; lower cash earnings are expected than in FY19. Revenue and impairments are expected to be broadly in line with FY19, subject to market conditions, however costs are growing due to increased technology investment and regulatory and compliance spend.
Bank of Queensland has set a dividend payout ratio of 70–80% of cash earnings. Given the anticipated impact of strategic transformation activities on 1H20 profits, this will require APRA approval due to the 12 month profit test. If APRA approval is not given, the 1H20 dividend payout ratio may be below the target range.
Bank of Queensland is battling to turn around after sub-optimal FY19 results. Cash earnings after tax were down 14% to $320 million, while statutory net profits after tax were down 11% to $298 million. Cash basic earnings per share were down 16% to 79.6 cents from 94.7 cents.
