Shares in Australia's largest hospital operator Ramsay Health Care Limited (ASX: RHC) were placed in a trading halt earlier today, pending details of a capital raising.
Capital raising and dividend suspension
Ramsay is looking to undertake an equity raising worth up to $1.4 billion, consisting of $1.2 billion in an underwritten institutional placement of shares and $200 million in a non-underwritten share purchase plan.
The institutional placement will be conducted at $56.00, representing a 12.9% discount from Ramsay's last closing price of $64.29 and will see approximately 21.4 million new shares being issued. Following the completion of the placement, Ramsay will be looking to raise up to $200 million from retail shareholders through a share purchase plan.
In addition to the capital raising, Ramsay announced that due to the impact of the coronavirus pandemic on cash flow, the company has temporarily suspended payment of its ordinary share dividends. However, Ramsay did note that it will continue to pay dividends on its Convertible Adjustable Rate Equity Securities (CARES).
Why is Ramsay raising capital?
In an announcement to the market this morning, Ramsay cited that the suspension of elective procedures due to COVID-19 has led to an uncertain operating environment. As a result, the equity raising will provide Ramsay with financial flexibility and security in the current environment, whilst also allowing the company to take advantage of any future growth opportunities.
Ramsay has operations in more than 500 locations across 11 countries. As a result of the coronavirus pandemic, respective governments in each of Ramsay's major operating regions deferred elective procedures in private hospitals in order to support public health systems.
Last month, Ramsay withdrew its earnings guidance for FY20, citing the uncertain duration and impact of the coronavirus pandemic. With elective surgeries being the main source of revenue for private operators like Ramsay, the Australian government recently provided private hospitals with a $1.3 billion viability guarantee. However, with some elective surgeries being resumed, the income that private hospitals receive will reduce the funding flow from the government.
Should you buy?
Restrictions on elective and non-urgent surgeries will be partially lifted by the federal government on 27 April. As a result, post-cancer, hip, knee, and other joint replacement surgeries will be able to go ahead in addition to IVF procedures.
The Ramsay share price has tanked more than 20% from its high in mid-February of $80.93. Ramsay shares will remain in a trading halt until the commencement of normal trading on Thursday, 24 April 2020.
