Bank of Queensland share price falls after $275m raise is revealed

Bank of Queensland share price: a play-by-play

First it was Westpac and now it’s the Bank of Queensland (ASX: BOQ) tapping the capital markets.

Like Westpac: the Bank of Queensland just recently announced that it was looking to raise $275m in new capital – split between a fully-underwritten $250m placement to institutional investors (now completed) and another (yet to be finalised) $25m from a share purchase plan (SPP) to eligible investors.

Unsurprisingly and just like Westpac – BOQ’s shares also fell steeply once the stock resumed trading post-raise trading halt.

The day prior to the announcement of this raise, for example, the Bank of Queensland shares traded hands at the $8.640 mark. A trading halt wouldn’t slow matters much, nor see bearish investors obstructed: once the stock opened after the completition of the institutional placement, it dove to a low of $8.070 per share during the day.

Since then the stock has managed to fall further, with BOQ currently trading at $7.780 per share – some 9.9% lower than they did prior to the cap raise announcement.

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Details of the capital raise

The Bank of Queensland articulated two primary reasons for the $275m capital raise. Specifically, it was noted that the funds would be used to:

‘Strengthen BOQ’s balance sheet, provide an increased buffer above the Australian Prudential Regulation Authority’s (APRA) "unquestionably strong" Common Equity Tier 1 (CET1) capital ratio benchmark and create additional capacity for BOQ to implement its strategic priorities.'

As part of the bank’s FY19 results, it was noted that BOQ’s Common Equity Tier 1 ratio stood at 9.04%.

In saying that and speaking of the outlook, BOQ noted during its FY19 presentation that the bank remained appropriately capitalised. Indeed, as was further explicated, 'the Offer is expected to add approximately 80 to 88 basis points to BOQ's Level 2 CET1 capital ratio.'

The outcome at a glance

Finally, examining the specifics behind the capital raise may go some ways to explain the bearish reaction from investors. Looking at the potential dilution to existing shareholders for example, it was noted that:

'The placement will result in approximately 32.5 million New shares issued at the Floor Price, representing approximately 8.0% of BOQ's existing issued capital.'

Ultimately, the $250m institutional portion of the capital raise was completed at the top-end of the previously stated book-build price – with 32.1m New Shares issued at a price of $7.78 per share.

Speaking to the yet-to-be-finalised SPP $25m portion of the raise, George Frazis – BOQ’s CEO – said that a 'SPP booklet with further details is expected to be sent to Eligible Shareholders on or around 3 December 2019.