Here’s why the Sovereign Cloud (ASX:SOV) share price is in the spotlight this week

Sovereign Cloud’s shares remain halted today. Here’s what’s going on

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The Sovereign Cloud Holdings Ltd (ASX: SOV) share price is still frozen today as the company undergoes a $35 million capital raise.

The capital raise includes a placement to NextDC Ltd (ASX: NXT) that will see it walking away with a 19.99% holding in Sovereign Cloud and a new partnership between the two companies.

The Sovereign Cloud share price has been halted at 61 cents since before the market opened on Monday.

Let’s take a closer look at the latest news from the infrastructure-as-a-service provider servicing Australian governments and critical industries.

Sovereign Cloud’s capital raise

As part of the company’s $35 million capital raise, it will offer around 70 million shares for 50 cents piece.

That represents an 18% discount to its current share price. The soon-to-be-issued shares also represent around 70% of the company’s existing shares.

NextDC’s 19.99% stake will cost it approximately $12.4 million. The other $22.6 million will come from an institutional and a retail entitlement offer.

Under the entitlement offers, Sovereign Cloud shareholders will be able to purchase 4 new shares in the company for every 11 shares they already hold.

All eyes will be on the Sovereign Cloud share price tomorrow when the company is expected to exit its trading halt following the institutional entitlement offer.

What’s next for Sovereign Cloud?

Following the capital raise, Sovereign Cloud’s platform AUCloud will have a cash position of $41.5 million.

The funds will go towards investing in customer growth, scaling AUCloud, and the research and development of new features.

The platform will also be rolled out to Brisbane, Melbourne, and Adelaide, on top of its presence in Sydney and Canberra.

Additionally, NextDC will be appointing a new director to Sovereign Cloud’s board. That will initially see NextDC’s CEO and managing director Craig Scroggie at the table.

Finally, the partnership between NextDC and Sovereign Cloud will give the latter’s platform access to NextDC’s national network of more than 1,500 customers and 730 channel partners.

The two companies will also expand AUCloud into the enterprise market.

Sovereign Cloud share price snapshot

It has been a tough year so far for the Sovereign Cloud share price.

It has fallen 41% since the year began. Its also 3% lower than it was this time last month.

Should you invest $1,000 in Sovereign Cloud right now?

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Motley Fool contributor Brooke Cooper 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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