Update (2 April): The institutional component of the offer was oversubscribed raising $231 million. When the retail component of the offer is completed, Webjet is expected to have raised a total of $346 million.
Travel company Webjet (ASX: WEB) hopes a $275 million equity raise will help the group survive the next few months as Covid-19 continues to disrupt tourism globally.
Webjet says proceeds of the raise will be used to strengthen its balance sheet and are expected to be enough to cover operating costs and capital expenditure through to the end of 2020.
The raise, at an offer price of $1.70 per new share (a discount of 32.2 per cent), includes a fully underwritten placement to raise $101 million and a partially underwritten entitlement offer to raise between $174 million and $231 million.
Approximately 195.1 million new shares will be issued under the offer, more than doubling the amount of shares currently issued in the company (135.6 million shares).
New shares will rank equally with existing shares but will not be entitled to the dividend for the six months ended 31 December 2019.
"This equity raising importantly positions Webjet to weather the severe disruption caused by COVID-19 to the travel industry," says Webjet managing director John Guscic.
"Equally significantly, travel is a core part of life and as the travel landscape recovers, this equity will help the company emerge in a strong position relative to its competitors."
To manage the near-term financial impact of Covid-19 Webjet has taken a number of steps to cut costs including reducing board and executive remuneration, deferring the 1H20 dividend payment, making over 440 staff redundant, reducing the working week to four days, and freezing all non-essential spending (including travel, hiring, consultants, contractors, etc).
These initiatives are expected to result in cash flow savings of around $13 million per month, with further cost reduction plans available if the Covid-19 situation drags on longer than six months.
Post-coronavirus Webjet believes its WebBeds hotel booking platform will be in a position to consolidate a larger share of the market should smaller competitors come under financial strain.
As for its main business, the flight booking platform, Webjet says it is well placed to capture the pick-up in travel activity once Covid-19 passes.
"When travel activity begins to normalise, it is expected to occur at various points in time and in different regions due to differences in timing and severity of the impact of COVID-19 in each region," says Webjet.
"As other regions are reaching their peak rates of infection, China is slowly beginning to see early signs of normalization hotel bookings in the week to 1 March 2020 increased 40 per cent over the previous week, while peak daily bookings for domestic flights were up 230 per cent from the lowest level recorded in February."
The Covid-19 crisis has already forced Webjet to withdraw its earnings guidance of between $147 million to $165 million.
Updated at 3:16PM AEDT on 1 April 2020.