Webjet (ASX:WEB) share price falls on $250m recovery-readying offer

The Webjet Ltd (ASX: WEB) share price is falling after the company announced a $250 million convertible note offering to prepare for recovery.

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The Webjet Ltd (ASX: WEB) share price has dumped this morning after the digital travel company announced its plans to raise $250 million through a convertible note offering. At the time of writing, the Webjet share price is down 4.66% to $5.32 per share.

Additionally, the downward movement comes after Queensland Premier Annastacia Palaszczuk announced the lifting of lockdown across the Greater Brisbane region at noon today.

Positioning for success

As hopes rise of a return to some level of normalcy, Webjet doesn’t want to be underprepared for the situation. Although Australia’s COVID-19 vaccine rollout is behind schedule, the good news is CSL Limited (ASX: CSL) will begin ramping local production of the AstraZeneca vaccine.

The mothballed tourism sector could soon be on track once more. For that reason, Webjet wants to be well-placed to capture the global business-to-business opportunity and accelerate growth in its business-to-consumer market.

The additional funds will allow the company to de-risk the refinancing of the current $130 million term debt due November 2022, resulting in a materially lower cash interest cost than the current arrangement, and allow Webjet to pursue strategic opportunities. Net proceeds will also repay $43 million of existing term debt.

Additionally, the notes will hold a term of 5 years and pay 0.75% per annum on a semi-annual basis. Noteholders will also be able to convert into fully paid ordinary shares at a share price of $6.35. This represents a conversion premium of 22.5% over the reference share price of $5.18.

Why is the Webjet share price falling?

Despite the potential of additional capital, the market is selling off the Webjet share price. There’s a couple of reasons this might be.

Firstly, the reference share price in the note offering is $5.18, compared to the pre-open price of $5.50. Almost 6% lower than the open share price. However, this likely doesn’t hold all too much significance.

Potentially, the note offering today has reminded shareholders of the company’s financial position. Based on the financial position at the end of last year, Webjet held $364.1 million in debt. As a result, the company’s debt to equity ratio was 57.2%. This is typically considered high – particularly when the ratio hovered around 30% prior to the pandemic.

Lastly, it brings the dilution from its $275 million equity raising last year back in focus. Consequently, shareholders have been diluted by 150% – with shares outstanding growing from 186.8 million to 339 million.

The Webjet share price is underperforming the S&P/ASX 200 Index (ASX: XJO), with the index up 0.18% at the time of writing.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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