The Xero Ltd (ASX: XRO) share price is paused from trade on Wednesday morning.
Why is the Xero share price paused?
The company's shares are paused at present after Xero announced a major convertible notes offering.
According to the release, Xero has launched an offering of US$850 million (~A$1.3 billion) fixed coupon guaranteed senior unsecured convertible notes due in 2031. These are to be issued by its wholly owned subsidiary, Xero Investments, and guaranteed by Xero.
The company intends for the notes to be listed on the official list of the Singapore Exchange Securities Trading. After which, conversion of the notes will be cash settled unless the issuer elects to physically settle the conversion by having Xero issue ordinary shares to the relevant noteholders.
Why is it raising funds?
After deductions for commissions, professional fees, other administrative expenses, and funding the costs of the call option transactions, the net proceeds from the offering will be used for several purposes.
Xero advised that this includes repurchasing its existing notes for potential acquisitions, strategic investments, and general corporate purposes.
In respect to the repurchase of existing notes from the US$700 million zero coupon guaranteed convertible notes that are due in 2025, Xero advised that it is carrying out a reverse book building process. This is being undertaken to receive indications of interest from holders of the existing notes that are willing to sell in return for cash. In addition, Xero may, at its discretion, continue to buyback on-market any remaining existing notes.
As for its potential acquisitions and strategic investments, Xero has not advised of any deals in the works. Instead, it appears to be ensuring that it is positioned to take advantage of opportunities if and when they arise.
Commenting on the convertible notes offering, Xero's chief financial officer, Kirsty Godfrey-Billy, said:
We're pleased with how we are managing our strong balance sheet and the optionality this provides. The announced offering will provide us with financial flexibility as we continue to execute our strategic priorities.
The Xero share price is up 20% since this time last year.
Should you buy its shares?
One leading broker that sees a lot of value in the Xero share price is Macquarie.
Earlier this week, its analysts put an outperform rating and $180.70 price target on its shares.
Based on yesterday's close price, this implies potential upside of 37% for investors over the next 12 months.
