When companies raise new capital, their retail shareholders can sometimes feel a bit disgruntled.
This is because companies often raise the money at a discount to the prevailing share price, and generally raise the money from large institutional investors.
There's an important caveat to this, however, which is that shareholders can make a decent windfall gain if the share price holds up.
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Investors smiling
This is exactly what is happening with L1 Group Ltd (ASX: L1G), which has just announced to the ASX that it has raised $286 million in new capital through an institutional placement at 95 cents per share.
The raise was below the company's previous trading price of $1.03 per share, and you might expect that with a big tranche of new shares coming onto the company's register at a discount, the shares would fall.
That has not occurred, however, with L1 stock surging 12.1% to be trading at $1.15.
This is where it gets interesting for L1 shareholders, or at least those who were on the register by 28 October.
These shareholders will be able to subscribe for $30,000 worth of new shares each, also at the 95-cent issue price, meaning they're making an easy 17.4% windfall gain at the current share price.
The company will raise up to $25 million in the placement to existing shareholders.
Raising funds to grow
So what will the new funds be used for?
L1 describes itself as a "specialist alternative investment manager", and it told the ASX in a statement on Thursday that "proceeds raised will provide L1 Group with the balance sheet flexibility to accelerate growth initiatives including seeding new investment strategies and partnerships as well as pursuing potential strategic opportunities''.
Specifically, the company will be using the money to co-invest in its new "global long short strategy" and provide co-investment for another, unspecified investment strategy to be launched in the near term.
The money would also be used for "investments in new affiliates and joint venture partners" and to "support potential strategic opportunities including value accretive and complementary acquisitions''.
L1 Group was valued at $2.3 billion before the new capital raising was announced. The new shares will start trading on the ASX on December 1.
The Australian Financial Review was reporting earlier this week that Washington H. Soul Pattinson and Co Ltd (ASX: SOL) was a cornerstone investor in the $296 million capital raise.
