SciDev (ASX:SDV) share price sinks 9% on Tuesday. Here's why

The company's shares had an awful finish on Tuesday.

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The SciDev Ltd (ASX: SDV) share price came out of a trading halt today following the company's successful placement.

While SciDev is pleased with the latest capital raising efforts, its shares have plummeted 9.03% to 65.5 cents.

Let's take a closer look at the details regarding the chemical engineering company's latest announcement.

Why is SciDev shares in negative territory?

A major catalyst for SciDev shares sinking could be investor concerns about the impending dilution of shares.

According to its release, SciDev advised it has received binding commitments from an array of institutions to raise $18 million. The strongly-supported placement primarily came from local and international institutional investors.

The placement will see around 27.7 million new ordinary shares created at an issue price of 65 cents apiece. SciDev will use its existing placement capacity under listing rule 7.1 (15.3 million shares) and 7.1A (12.4 million shares). This allows up to 15% of its shares to be issued without shareholder approval. The new shares will rank equally with SciDev's existing ordinary shares.

SciDev also announced a share purchase plan (SSP) to raise a further $2 million from eligible shareholders. The issue price was listed as the same offered in the placement.

The proceeds from both the placement and SPP will be used to deliver a number of strategic objectives, that include:

  • Consolidation of SciDev's Australian production facilities, including an upgrade of laboratory capability and expansion of our manufacturing capability;
  • Funding an upcoming acquisition payment for SciDev Water Services (Haldon); and
  • Funding new green chemistry initiatives to displace oil-based chemistries in the global $11 billion oil and gas market.

Management commentary

SciDev managing director and CEO Lewis Utting commented:

The Placement will allow us to accelerate the growth opportunities across our business, specifically in the large water treatment vertical. The funds will support the expansion of our manufacturing capabilities in Australia, securing our supply chain, improving our margins, and allowing our highly skilled team to continue to develop new technologies to help our clients solve their pressing operational and environmental issues.

About the SciDev share price 

Over the past 12 months, SciDev shares have dropped by more than 7% and are down almost 20% year-to-date. The company's shares recently reached a 52-week high of $1.07 in August before being pushed lower.

On valuation grounds, SciDev commands a market capitalisation of roughly $104.3 million with approximately 159.26 million shares on issue.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. 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 no position in any of the stocks mentioned. 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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