ASX companies needing capital urged to 'act now' before funding dries up

A fair chunk of ASX-listed companies have had little difficulty in raising capital recently, but the good run won’t last forever.

In April, small caps with market capitalisations between $100m and $500m raised $583m while micro-caps worth less than $100m raised $168m.

While in the early days of the crisis investors had an appetite for mining juniors, particularly those in gold, other sectors were also able to get their fair share of funds.

But that window of opportunity may be starting to close, according to law firm Baker McKenzie, which has helped companies from cannabis play Elixinol (ASX:EXL) to space tech company Electro Optic Systems (ASX:EOS) raise capital.

“For those companies needing to have as much liquidity available as possible to get them through this crisis, we recommend that they consider acting now before financing options narrow,” said Antony Rumboll, head of equity capital markets and lead partner at Baker McKenzie.

“Australia and New Zealand have been leading the world at raising capital which will serve both countries well and help them navigate this period of uncertainty and extreme volatility.”

Rule changes have helped

At the end of March, the ASX and ASIC implemented temporary law changes that made it easier to raise capital.

Rumboll agrees that these have had their desired effect.

“The regulatory response has been well received, in that they provide more flexibility for companies to act and respond whilst addressing the concerns of existing shareholders,” he said.

The ASX’s gains from its low point on March 23 have inevitably helped as well. However, markets remain well off last year’s highs.

Market fall potentially on the horizon

Some analysts are warning markets could fall again as companies’ release their COVID-19 impacted earnings.

deVere Group founder Nigel Green warned markets were assuming a seamless second-half recovery for the global economy, but if that doesn’t go according to plan the market might get spooked.

“It is extreme uncertainty, the likes of which we saw at the peak of the pandemic, that typically upsets markets,” he said.

“Whether they are correct in their assessment remains to be seen, but markets are looking towards the second half of the year.

“They appear to believe that there is likely to be a steady economic recovery as key advances are made in coronavirus treatments, as central banks continue to implement and further bolster historic stimulus packages, and as lockdown restrictions around the world are eased to revive activity.

“The optimistic stock markets seem at odds with the grim economic data. They may be being overly confident, even complacent.”

Nonetheless, Rumboll expects more ASX-listed companies will heed his warnings and rattle their tins.

“Absent a significant market correction and assuming investors still have sufficient resources to deploy, we expect more activity up until 30 June, as companies look to put themselves in the best possible position to meet the challenges ahead,” he said.