Xero share price on watch amid $1.3 billion convertible notes offering

Why is this tech stock raising funds?

| More on:
Man holding a calculator with Australian dollar notes, symbolising dividends.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Motley Fool contributor James Mickleboro has positions in Xero. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group and Xero. The Motley Fool Australia has positions in and has recommended Macquarie Group and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

A group of businesspeople clapping.
Technology Shares

Why Xero could be one the best shares to buy in the Asia-Pacific

Goldman Sachs thinks very highly of this tech stock.

Read more »

a man wearing old fashioned aviator cap and goggles emerges from the top of a cannon pointed towards the sky. He is holding a phone and taking a selfie.
Technology Shares

Up 80% in a year, this ASX All Ords stock is a 'long way short' of its true value

This fund manager is bullish.

Read more »

A smiling woman with a handful of $100 notes, indicating strong dividend payments
Technology Shares

If I'd put $5,000 into DroneShield shares just 1 year ago, here's what I'd have now

How good an investment has this tech company been?

Read more »

Vanadium Resources share price person riding rocket indicating share price increase
Technology Shares

Guess which ASX tech stock could double in value

This highly speculative stock could offer big returns according to one broker.

Read more »

A silhouette shot of a man holding a control in his hands and watching as a drone hovers overhead with sunrays coming from the sky.
Technology Shares

Unstoppable: How much higher can the DroneShield share price fly?

Another day flying high for this counter-drone player.

Read more »

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.
Share Fallers

Why did this ASX AI stock just crash 21%?

Investors just sent this ASX AI stock tumbling by more than 21%. But why?

Read more »

Man with rocket wings which have flames coming out of them.
Technology Shares

Guess which undervalued ASX All Ords stock could rocket 65%

Bell Potter thinks the market is seriously undervaluing this stock.

Read more »

Investor looking at falling ASX share price on computer screen
Share Fallers

Can the Appen share price recover amid AI mania?

Once an ASX tech darling, Appen has fallen on hard times in recent years. Can it capitalise on the AI…

Read more »