Why are Healius shares crashing 35% on Wednesday?

This healthcare share is crashing deep into the red on Wednesday. What's happening?

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Healius Ltd (ASX: HLS) shares are back from their trading halt and crashing deep into the red.

In morning trade, the healthcare company's shares are down 35% to $1.19.

As a comparison, the ASX 200 index is trading broadly flat.

Why are Healius shares crashing?

Investors have been hitting the sell button today after the company completed the institutional component of a heavily discounted entitlement offer.

According to the release, the company has raised a total of approximately $154 million at $1.20 per new share. This represents a 35% discount to where Healius shares last traded.

The company notes that the institutional entitlement offer was well supported by existing Healius institutional shareholders. Approximately 92% of entitlements available to eligible institutional shareholders were taken up.

Entitlements not taken up by eligible institutional shareholders and entitlements of ineligible institutional shareholders were sold at the $1.20 per share offer price.

The company will now push ahead with a retail entitlement offer aiming to raise a further $33 million.

Why is it raising funds?

Healius will use the proceeds from the entitlement offer to reduce its net debt and reset its balance sheet with appropriate gearing.

This capital raising coincides with the company making an agreement with its lenders to waive its gearing covenant for the first half of 2024 and temporarily increase the covenant from 3.5 times to 4 times at 30 June 2024.

Following the completion of the entitlement offer, Healius expects to have sufficient financial flexibility and liquidity. Though, it is worth noting that part of the agreement will see the company suspend its dividend in FY 2024.

Following today's disappointing decline, Healius shares are now down approximately 64% over the last 12 months.

Motley Fool contributor James Mickleboro 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 Scott Phillips.

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