Why the Straker (ASX:STG) share price is falling 6% today

The translation company’s shares are trending downwards today ahead of an impending share dilution.

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The Straker Translations Ltd (ASX: STG) share price is in the red today after the company released an update on its capital raising efforts.

At the time of writing, Straker shares are down 5.58% to $2.20.

What’s driving the Straker share price lower?

A possible catalyst for the decline is an impending share dilution for all existing shareholders.

According to this morning’s release, the translation specialist has completed a share placement and an upsized institutional entitlement offer. Both equity-raising efforts saw strong demand from existing shareholders and new investors.

As a result, the company increased the offer size of the placement by $5 million to $15 million. Together with the institutional entitlement offer of $5 million, this brings the total equity raised to $20 million.

Approximately 10.5 million new ordinary shares will be issued at a price of $1.90 apiece to each participating investor. This represents a discount of around 13.5% to today’s Straker share price.

Straker will use its existing placement capacity to create the new shares. Under listing rule 7.1, this allows up to 15% of its total shares to be issued without shareholder approval. The company will use an extension to the listing rule (7.1A) to issue the remaining shares with the additional 10% capacity.

The proceeds of the placement and institutional entitlement offer will see Straker improve balance sheet liquidity to execute its growth strategies. Funds will be allocated once the company pays down existing debt and covers the cost of the equity raise.

It is expected the placement and institutional entitlement offer shares will be allotted on 15 June 2021.

In addition, Straker will launch a $5 million retail entitlement offer on 9 June 2021. Eligible investors will be able to top up their holding with 1 share for every 10.32 Straker shares held.

Management commentary

Straker CEO Grant Straker said:

Having delivered strong growth since our IPO this was our first post-IPO equity raise and our stronger balance sheet will enable us to drive towards our aspirational goal of getting to $100m in revenue.

We have multiple growth opportunities in front of us, and we feel now is the time to invest in organic and inorganic growth strategies. It is very pleasing to see strong support for the equity raise and to have a world-class range of new and existing institutional shareholders on the register, a great reflection on all the hard work the Straker team has done over the past few years.

The Straker share price has almost doubled in value in the past 12 months, surging by more than 96%.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Straker Translations. 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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