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Bathroom supplies distributor Reece (ASX: REH) is launching a pre-emptive $600 million capital raising even though trading has been strong and shares are down 27 per cent since late February.
The equity raising will include $170 million committed by major shareholder group the Wilson family, and will be offered at $7.60 per share.
This represents a 12.5 per cent discount to the trading price on Friday.
Proceeds will go towards balance sheet flexibility, increasing liquidity and reducing net debt, as well as supporting business during the current macro-economic uncertainty.
Reece's branches and distribution centres in Australia and the US remain open as plumbing is considered an essential service in both countries.
The group cites a "solid start to the calendar year with strong March quarter sales", with a shift to investment in home comforts, hot water units and repair and maintenance work.
As a result the company hasn't yet seen any material impact from the Covid-19 pandemic, but it notes it is impossible to forecast the future impacts of this health and economic crisis on trading and the supply chain.
In light of this, dividends have also been suspended, implying further erosion of shareholder value while the company offloads 14.1 per cent of its issued capital for the new share.
"Reece has a 100-year history of strengthening the business through tough times the current crisis is no exception," says chief executive officer Peter Wilson.
"We believe that Reece, and the plumbing and construction trades it supports, has an essential role to play in times of crisis.
"We want to continue to run our business with a long-term view, despite the short-term challenges. A more conservative balance sheet will give us the confidence to continue to act on long term objectives for the benefit of our shareholders."
He says the capital raising sets up Reece for the future.
"It will enable us to navigate through this period of uncertainty from a position of strength, and importantly it provides us with the flexibility to accelerate our growth strategy and pursue opportunities that may emerge," he says.
Updated at 11:36am AEST on 6 April 2020.
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