Why are NextDC shares surging higher?

There's been a big vote of confidence in the company.

Shares in NextDC Ltd (ASX: NXT) are trading higher after the company announced it would raise $1 billion from the issue of new hybrid securities.

The capital raise is also underwritten, with Québec, Canada-based investment group La Caisse putting forward a binding commitment for the whole amount if other investors do not take it up.

Two IT professionals walk along a wall of mainframes in a data centre discussing various things

Image source: Getty Images

Capital to drive growth

The company said in a statement to the ASX that the hybrid securities "will provide NextDC with flexible, long-term capital to support the company's growth funding requirements and strategic initiatives, including the continued development of key data centre assets and the advancement of future capacity expansions''.

NextDC went on to say:

The hybrid securities will have a non-call period of five years and a maturity of 100 years. They are expected to be tax deductible and classified as debt for accounting purposes, and will sit outside the company's senior debt covenants. This funding is expected to enhance the company's financial flexibility, including through a lower cash coupon during the first five years, small coupon step-ups until year 10 and the ability to defer coupons at the company's election.

There are no equity conversion features associated with the hybrid securities, which rank junior to the company's existing debt.

NextDC will now offer the securities to other institutional investors, with the closing date for acceptance expected to be on or about April 23.

Further raise potential

The company will have liquidity of about $5.2 billion once the new securities are issued.

NextDC said it also intended to undertake a subordinated notes issue in the Australian wholesale debt market to raise further funds, as flagged during the release of its first-half results.

NextDC Managing Director Craig Scroggie said regarding the new capital raise:

The announcement of the hybrid securities offer and the La Caisse commitment represent another step toward NEXTDC delivering on a material step-change in the scale of our business as we deliver on the company's contracted forward order book across the period to FY29 and make further investments across the portfolio of new projects. We are delighted with this binding commitment from La Caisse, a long‑term investor with deep experience in infrastructure, as further validation of our growth strategy.

La Caisse Executive Vice President Emmanuel Jaclot said:

This commitment will help underpin NextDC's construction program, supporting growing demand for digital infrastructure in Australia and adding to La Caisse's long track record in partnering with high-quality infrastructure operators through their growth phase. We see this as a promising first step toward a long-term partnership between La Caisse and NextDC.

NextDC shares were 5.9% higher in early trade at $11.93. The company was valued at $7.2 billion at the close of trade on Thursday.

Motley Fool contributor Cameron England has positions in Nextdc. 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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