Shares in Metcash Limited (ASX: MTS) entered a trading halt this morning, pending an announcement from the company regarding a capital raising.
What did Metcash announce?
Metcash released an announcement requesting that its securities be placed in a trading halt in connection with a capital raising. The supermarket, hardware and liquor wholesaler is looking to raise $330 million through an institutional placement and share placement plan at $2.80 per share.
With the Metcash share price last trading at $3.04, the deal will represent a 7.9% discount. In seeking a capital raise, Metcash has joined a slew of other S&P/ASX 200 Index (ASX: XJO) shares who have looked to strengthen their balance sheets and remain liquid during the turmoil from the coronavirus pandemic.
How will Metcash use funds from the capital raising?
In addition to strengthening its balance sheet and liquidity, Metcash also noted that the capital raising will be used to capitalise on potential growth opportunities that may arise in the pandemic.
The capital raising will also provide Metcash with the ability to support its independent retail network by providing working capital and operational support. Additionally, Metcash noted in the announcement that the company will be able to continue investing in the MFuture growth program and complete 3 bolt-on acquisitions by FY21.
How have Metcash shares performed in 2020?
Metcash has been a silent achiever on the ASX 200, with the company's share price surging around 40% since its mid-March low. In addition to details about the capital raising, Metcash also provided the market with an update on its performance.
The wholesaler noted that its food segment saw a significant lift in sales during March and early April due to changing consumer behaviour related to COVID-19 restrictions. Metcash also reported that Liquor sales increased 3.2% for the 5 months ending March 2020. Elevated sales in its Australian network partially offset a decline in its New Zealand operations due to COVID-19 restrictions.
Hardware sales improved from the first half of FY20, declining 1.3% in the 5 months ending March 2020. Metcash highlighted that despite increased demand, construction activity is poised to slow down.
Foolish takeaway
Metcash operates as the owner and wholesaler for prominent brands including IGA supermarkets, Mitre 10 hardware outlets and Cellarbrations liquor stores.
The COVID-19 pandemic presents wholesalers like Metcash with a unique set of challenges and uncertainty. The equity raising and new debt facilities will give Metcash flexibility and liquidity in the uncertain environment, however, the company also noted that further investment in working capital is likely.
Metcash shares are expected to resume trading on the ASX tomorrow.
