A $301 million equity raise will prepare childcare giant G8 Education (ASX: GEM) for the months ahead.
As the nation comes to terms with the prolonged impact Covid-19 will have on the economy, G8 Education, which runs 475 childcare centres in Australia and 17 in Singapore, is making sure it has plenty of cash on hand.
The raise will see 377 new shares issued, representing approximately 82 per cent of existing G8 shares on issue.
The $301 million will be raised via an institutional placement of $134 million and an entitlement offer of $167 million.
Both tranches will be issued at a fixed price of $0.80 per new share, representing a 25.9 per cent discount to the last traded price of $1.80 per share on 2 April 2020.
Post-raise G8 Education intends to use the cash to pay off debt and improve liquidity to manage the business through what it envisions will be a prolonged period of disruption to the childcare sector.
At the end of 2019 G8 had drawn down $395 million from a $500 million debt facility and $41 million cash on hand.
G8 will have $289 million in cash once the raise is completed.
"The Board considers it prudent to take further steps to preserve cash, improve efficiency and ensure balance sheet flexibility and liquidity during this unprecedented period," says G8 CEO and managing director Gary Carroll.
"The equity raising we have announced today, along with other capital structure and operational initiatives, will ensure G8 is well-positioned to navigate the current period and emerge from it in a strong position capable of delivering the high-quality services that Australian families expect of us."
The company has also agreed to amendments to its debt facilities with its banking syndicates to provide covenant relief for the next two testing periods, being June 2020 and December 2020. The company says this relief will give G8 greater flexibility to navigate the Covid-19 impacted trading conditions.
Royal Bank of Canada and UBS have been appointed as joint lead managers and underwriters to the equity raising.
G8 welcomes government support
The childcare operator intends to take full advantage of the raft of stimulus measures made available by the Federal and State Governments to support the business through the coming months.
The company is eligible to take up the Federal Government's Early Childhood Education and Care Relief Package (ECECRP). Under this plan the Government will make weekly payments to ECEC providers in lieu of subsidies it would've otherwise received.
The ECECRP payments represent 50 per cent of each centre's fee levels prior to the impacts of Covid-19 and will be made until 28 June 2020.
The payments will complement JobKeeper wage subsidy payments which G8 is also eligible to take advantage of.
G8 also intends to utilise Payroll Tax deferral schemes announced by the State Governments in South Australia, Queensland and New South Wales. These measures will allow G8 to defer payments for up to six months in NSW and SA, and to the end of 2020 in Queensland.
"The strong fundamentals underpinning the early childhood education and care sector and the essential nature of our services have been validated by recent Federal Government announcements," says Carroll.
"The support measures that have been introduced provide stability for the sector and, importantly, increased security to our families and teams during a period of heightened uncertainty."
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