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Why the Webjet share price crashed 33% lower today

The Webjet Limited (ASX: WEB) share price has returned from its suspension with a bang on Thursday.

The online travel agent’s shares were down as much as 33% to $2.53 at one stage.

Thankfully, they have bounced back strongly since and are now down 13% to $3.27.

Why is the Webjet share price crashing lower?

Webjet’s shares had been suspended from trade over the last couple of weeks whilst it sought funding to see it through the coronavirus crisis.

The closing of borders and travel restrictions globally have hit Webjet and fellow travel bookers significantly, leaving them in a precarious position.

The good news is that Webjet has been able to come up with funding that will see it through to at least the end of 2020.

This morning the company revealed that it has successfully completed its institutional placement and institutional entitlement offer.

The size of placement was increased due to strong demand, leading to the company raising $231 million from institutional investors at a price of $1.70 per new share. This equates to a sizeable 55% discount to its last close price.

Bain Capital invests.

According to the release, Bain Capital Credit LP took part in the equity raising and has become a new shareholder. It subscribed for $25 million of Webjet shares and has agreed to a potential economic commitment of up to an additional $65 million. This is subject to Foreign Investment Review Board approval.

Webjet’s Managing Director, John Guscic, was very pleased with the support the equity raising received.

He said: “We are delighted with this strong demonstration of support from both our existing and new investors. This equity raising provides Webjet significant liquidity to navigate the near-term uncertainty created by COVID-19, and importantly positions us to continue our leadership in our global WebBeds business and Australian OTA.”

“We provide an essential distribution channel in the travel sector and anticipate we will play an even more valuable role connecting our clients and hoteliers in a recovering environment and as travel volumes return in the future,” he added.

Retail entitlement offer.

Webjet will now push ahead with its retail entitlement offer. This is due to open on April 8, before closing on April 21.

Eligible retail shareholders will be able to subscribe for 1 new share for every 1 fully paid ordinary shares held in Webjet as at 7:00pm (AEDT) on the record date of April 3. This will be conducted at the same price as the institutional offer – $1.70 per new share.

Combined with the institutional component, Webjet expects to raise a total of $346 million.

Webjet isn’t the only company raising funds on Thursday. Student placement and language testing company IDP Education Ltd (ASX: IEL) successfully raised $225 million from institutional investors this morning.

As with Webjet, these funds have been raised to ensure it comes out of the coronavirus crisis in a strong position.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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