The Challenger Ltd (ASX: CGF) share price has returned from its trading halt and sunk lower.
In morning trade the annuities company's shares are down 7% to $4.93.
Why was the Challenger share price in a trading halt?
Challenger requested a trading halt on Monday while it undertook a $300 million equity raising to further strengthen its capital position and provide flexibility to enhance earnings.
This morning the company revealed that it has successfully completed the institutional component of its equity raising. Challenger raised $270 million through the issue of approximately 55 million new shares at $4.89 per share. This was an 8.1% discount to the company's last close price.
Management notes that it received significant interest from both domestic and offshore institutional investors, with the placement significantly oversubscribed.
Challenger's Managing Director and Chief Executive Officer, Richard Howes, was very pleased with the response to the equity raising.
He said: "We are very pleased with the strong support shown by institutional shareholders for Challenger's commitment to maintaining a strong capital position while at the same time providing flexibility to enhance earnings."
"This raise supports the business to remain strongly capitalised through this period of ongoing market uncertainty," he added.
What is Challenger going to do with the money?
Challenger intends to prudently and progressively deploy the capital raised. This will primarily be investment grade fixed income opportunities that provide compelling risk adjusted returns.
Mr Howes explained: "Following the pandemic market sell-off, fixed income asset risk premiums have widened significantly and we are now seeing opportunities, primarily in investment grade, to selectively invest this cash and liquids balance and generate pre-tax ROEs in excess of 20% on the capital backing these investments."
"This is well above our pre-tax ROE target of the RBA cash rate plus a margin of 14%. Importantly, we can capture these opportunities, while maintaining our current defensive portfolio settings, with a high weighting to investment grade fixed income," he added.
What now?
Challenger will now push ahead with its share purchase plan which aims to raise up to $30 million.
Existing eligible shareholders have the opportunity to apply for up to $30,000 in new, fully paid Challenger ordinary shares without incurring brokerage or transaction costs.
The issue price will be the lower of the placement price and a 2% discount to the 5-day volume weighted average price of its shares up to, and including, the closing date of the share purchase plan.
No final dividend.
Finally, also weighing on its shares today has been an update on its final dividend for FY 2020.
Given the uncertain economic conditions, investment market volatility, and its intention to maintain a strong capital position while optimising earnings, the Challenger board revealed that it does not intend to pay a final dividend in September.
