Why is the Bubs share price crashing 15% today?

The Bubs Australia Ltd (ASX: BUB) share price has returned from its trading halt and sank deep into the red.

In morning trade, the junior infant formula company’s shares are down 15% to 54.5 cents.

Why is the Bubs share price sinking?

Investors have been selling down the Bubs share price today after the company completed the institutional component of its equity raising.

According to the release, Bubs has raised $32.4 million via an institutional placement of 62.4 million new shares and $7.7 million from an institutional entitlement offer. These funds were raised at a sizeable 18.8% discount of 52 cents per new share.

Bubs chair, Dennis Lin, commented:

We are pleased with the support shown by institutional investors in the Equity Raising. We are delighted to welcome new shareholders to the register and are always grateful for the participation from our existing shareholders. Both have displayed confidence in Bubs and our commitment to deliver on future opportunities.

Retail offer

The company will now push ahead with its retail entitlement offer, which is aiming to raise a further $22.9 million. Eligible shareholders will be able to subscribe for 1 new share for every 10.42 shares held at the close of play on Thursday.

However, retail shareholders may feel a little short-changed here, as well as being diluted by the equity raising, they won’t be getting a discount anywhere near as generous as the one institutional investors received.

As these new shares are being offered at the same price as the institutional placement, this means the discount on offer is a paltry 4.6% following today’s decline by the Bubs share price to 54.5 cents.

Why is Bubs raising funds?

Bubs is raising funds on the belief that its recent sales boost in the United States due to supply shortages won’t be a short term thing.

The offer proceeds will be used to support working capital, inventory and growth initiatives. The latter includes its expansion in the US and an increased manufacturing capability to meet accelerating demand.

Time will tell if this was a one-time sugar hit in the US or the start of something big. One thing for sure, though, is that retail shareholders will no doubt be hoping this is the final time Bubs needs to raise funds.

The post Why is the Bubs share price crashing 15% today? appeared first on The Motley Fool Australia.

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• Why is the Bubs share price taking off today?
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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