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Qantas share price higher despite share purchase plan flop

The Qantas Airways Limited (ASX: QAN) share price is pushing higher on Monday morning following an update on its share purchase plan.

At the time of writing the airline operator’s shares are up 2% to $3.39.

What did Qantas announce?

This morning Qantas provided the market with an update on its share purchase plan. This follows the successful completion of its $1,360 million fully underwritten placement at the end of June.

Those funds were raised at $3.65 per share after the airline received high levels of interest from both existing and new institutional investors. In fact, demand to participate in the placement was significantly in excess of the funds that Qantas sought to raise.

Unfortunately, the same cannot be said for demand from retail investors. Qantas was aiming to raise up to $500 million via its non-underwritten share purchase plan. However, this morning it revealed that it has managed to raise just $71.7 million.

Qantas received valid applications from 8,660 eligible shareholders with an average application amount of $8,200. This represents a participation rate of approximately 5% of 173,343 eligible shareholders and falls short of its target by $428.3 million.

Given this shortfall, Qantas won’t have as much liquidity to ride out the storm as first hoped. An update on this and its current cash burn rate is likely to be released with its full year results this month.

Why did the share purchase plan flop?

Management blamed the timing of the share purchase plan for the flop. It notes that it coincided with a series of tightened border restrictions across Australian states and territories, sparked by a COVID-19 outbreak in Melbourne and small clusters elsewhere.

This has weighed on the Qantas share price and made its share purchase plan far less attractive to investors.

For example, the new shares issued under the share purchase plan will be at $3.18 per share. This represents just a 2.5% discount to the 5-day volume weighted average price up to, and including, 5 August 2020 (the closing date).

And given the trajectory the Qantas share price was taking at that point, it would not have been at all surprising to see its shares drop below the issue price.

Fortunately, for those that were brave enough to take part in the offer, the Qantas share price rebounded last week and is now 6.6% higher than the issue price.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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