- Oil and gas explorer Otto Energy (OEL) is tapping investors for $17.5 million despite current market conditions
- The energy sector has had a particularly difficult month with COVID-19 and a Saudi Arabia-Russia price war pummelling the sector
- Otto wants to shore up its balance sheet to come out the other side strong
- However, with new shares priced at just 0.6 each, Otto will be issuing almost three billion shares in order to raise the cash
- This more than doubles the company's current shares on offer
- Otto shares are yet to come out of a trading halt prior to today's announcement, but last closed worth 0.8 cents each
Oil and gas explorer Otto Energy (OEL) has baffled shareholders with its decision to raise $17.5 million under current market conditions.
As COVID-19 continues to ravage stock markets across the globe, investors are panic-selling and putting their hope in defensive stocks and gold. Moreover, energy stocks have taken a particular beating over the past month as coronavirus fears are exacerbated by an oil price war between Saudi Arabia and Russia.
Yet, despite these grim circumstances, Otto is tapping investors for some extra cash in the bank.
Otto said the $17.5 million will help fund its SM71 development well, cover working costs, and shore up the company's balance sheet so the company is in a stable place once the volatile conditions end.
While this all sounds reasonable, shareholders may be concerned about the heavy dilution involved in this capital raise. Otto aims to grab a hold of the funds through a placement and entitlement offer.
Both will price shares at 0.6 cents each — a 25 per cent discount to Otto's last closing price — with $1.4 million to being raised via a placement to major shareholder Molton and the remaining $16.1 million to come from the entitlement offer.
This means Otto will be issuing almost three billion new shares to raise less than $20 million. Otto currently has just under 2.5 billion shares on offer, meaning the capital raise more than doubles company shares.
Otto Managing Director Matthew Allen said the company expects business conditions to worsen soon, and as such is taking measures to make sure it is well-positioned for recovery.
"The Board of Otto have taken a rapid initiative, with the support of our long-term shareholder in Molton Holdings Ltd, to shore up the company’s balance sheet in these rapidly deteriorating market conditions," Matthew explained.
"All shareholders will have the opportunity to participate in this process and we encourage shareholders to take up their entitlements and support the company," he said.
Any shareholders who decide not to take part, however, will have their shareholding in Otto diluted by 54 per cent.
Otto shares are yet to be released from their trading halt before this morning's announcement and last closed worth 0.8 cents each. The company has a $19.68 million market cap.