Shares in ASX travel agent Helloworld Travel ltd (ASX: HLO) are in a trading halt after the company unveiled a $50 million capital raising.
Why is Helloworld raising capital?
Earlier today, Helloworld announced that the company will join other embattled companies in the travel sector and launch a capital raise. The news was initially speculated on the Australian Financial Review's 'Street Talk', before Helloworld released the official announcement to the market.
The listed travel agent will be looking to raise $50 million in capital, comprised of an institutional placement and entitlement offer. The new shares will be issued at $1.65, a 16% discount from the last closing price. The capital raising will be aimed at helping Helloworld strengthen its balance sheet and provide the company with liquidity during the prolonged disruption of global travel.
The outlook for Helloworld in 2020 and beyond
Helloworld is a listed travel agent that specialises in retail and corporate travel management. In its investor presentation, the company highlighted the ongoing impact of COVID-19 on the travel industry, with restrictions expected to be in place through the remainder of 2020 and into 2021.
As a result, the company has cautioned investors that sales will remain between 10–12% below previous levels until September, when domestic border restrictions are expected to be lifted in addition to a potential trans-Tasman travel bubble.
In response to the COVID-19 pandemic, Helloworld was forced to initiate a range of cost saving initiatives. Net cash operating costs were progressively reduced to around $2 million per month since late March, with the company also closing its offshore centres in Manila and Mumbai.
Helloworld has also provided assistance by suspending all franchise and marketing fees for its retail travel agents and brokers, with the company noting that only 5% of its franchisees have elected to close. Post-COVID-19, Helloworld hopes to capitalise on the disruption of the global travel industry increasing its market share and focusing on domestic tourism until international travel returns.
Foolish takeaway
Helloworld shares last closed at $1.96 and will remain in a trading halt until the commencement of trading on Monday 20 July.
