Just as the chequered flag was waved on the troubled rights issue of Italian drill manufacturer Saipem [BIT:SPM], UK carmaker Aston Martin {LON:AML] announced plans to inject more equity capital into its balance sheet.

The deal is one of many set for the second half of the year, and not necessarily an easy one given the company’s troubled history on the public markets.

For Aston Martin, the capital raise is a “game changing deal” said Executive Chairman Lawrence Stroll in a statement last week, allowing the company to restore its balance sheet and accelerate growth.

But for some, the language replays the same tune heard in previous Aston Martin resets which equally promised to transform the company.

One investor speaking to the ECM Pulse was unenthusiastic about Aston Martin’s comeback to shareholders for more capital. “I can’t understand it, there doesn’t seem to be a case for throwing more money at it,” the investor said.

“The strategy seems to have changed three times or so since it went public as has management. I think that makes this a difficult deal to do, and it is not exactly a well-loved name after the IPO.”

Aston is seeking an equity injection of GBP 653m, around 22% more than its market cap of around GBP 530m on 18 July.

Saudi support

Saudi Arabia’s PIF is one of the few enthusiastic parties, set to become the second largest shareholder after the raise, with a 16.7% stake.

A source close to the transaction said that Aston fits in with the fund’s holdings in other luxury automotive manufactures such as McLaren and Pegani.

Saudi Arabia itself is also heavily invested in motorsports by hosting the annual Saudi Arabian Grand Prix in Formula 1 and the Formula-E Diriyah E-Prix, which has PIF as a local partner. The state oil giant Saudi Aramco [TADAWUL:2222] is also a principal sponsor for the Aston Martin Formula 1 team.

But alongside the strategic alignment, PIF recognises Aston Martin’s need to change its capital structure and to raise funds for heavy investment in e-vehicles, said the source.

Answering a question from this news service on an analyst call about the raise, Aston Martin’s CFO said that while the company hoped the high-end luxury space would prove resilient, it was not immune from inflationary pressures. Raising capital to offset that uncertainty was “the right thing” to do, the executive added.

Tough times ahead

Around GBP 335m of capital in the raise are provided by Yew-Tree Consortium, an investment consortium fronted by Stroll and the company’s largest shareholder, Mercedes-Benz AG, and PIF which is investing GBP 78m in the company through the cap hike.

The rest of Aston’s register will have to stump up the other GBP 318m, or Aston’s banks, Barclays and JPMorgan will. The marketed part of the deal might prove challenging given the losses that many ECM investors have taken on Aston since the IPO.

The company’s largest shareholders outside of Yew-Tree, PIF and Mercedes are Invesco, various investment divisions of UBS, Permian Investment Partners and Fidelity Management and Research, according to Dealogic Institutional Analytics.

Aston Martin’s share price is up around 15% since the announcement of the capital raise on Monday. The jump will put some pressure on funds shorting the stock, with around 3.96% of the company’s share capital in the hands of disclosed short-sellers, according to shortsell.nl.

Last week, Saipem’s EUR 2bn rights issue finished with a meagre 70% take-up and very few of the remaining 30% rights taken up and subscribed for after an auction in Milan.

As first reported by this news service, underwriting banks were left holding a sizeable chunk of stock, of around EUR 590m.

Several sources close to the deal bemoaned the rights issue as one of the most difficult transactions they had done in recent years, with one calling it a “nightmare”.

While Saipem got its cash, the takeaway for many peers will be that any rights issues require far greater discounts to attract investors and to make It worth banks’ risk-taking.

“There is a theme of corporates needing equity to fix their balance sheets as well as the credit market being closed, we are starting to see that trickle through,” said the banker. “It is a tough decision to make as many of these transactions will be quite painful given the discounts which will have to be offered.”

Pre-commitments wanted

The investor and the banker away from the deal said that Aston Martin’s corporate structure changes with three investors holding such large stakes meant it was fast becoming an “un-public company”.

But the source close said the structure made sense for Aston, given its frequent capital needs. Some of the most successful primary raisings so far this year have seen large shareholders ready to pre-commit just like Aston shareholders did.

Sources say this pre-commitment sets a strong tone for deals and has noticeably increased in transactions this year. Primary follow-ons in 2019 to the end 2021 saw only 14% of total issuance pre-committed to by shareholders, according to Dealogic data.

While having large shareholders ready to pre-commit to a capital increase before launch is certainly not a necessity, it helps in a tough market.

With volatility still high and equity markets bearish, deals will need all the help they can get.

PIF and Mercedes Benz declined to comment. Aston Martin did not respond to requests for comment.