(News Bulletin 247) – The railway equipment manufacturer kicked off this call to the market this Monday, with the planned issue of 76.9 million new shares at a price of 13 euros per share. This reflects a discount of more than 30% compared to Friday’s price.

With very low volatility on the stock markets and a share price up more than 25% over a month, Alstom decided that it was better not to dawdle. The railway equipment manufacturer indicated at the beginning of May that it intended to carry out a capital increase of 1 billion euros to reduce debt. The group had given itself until the end of September to carry out this call to the market.

He ended up only having to wait a few weeks. Alstom announced this Monday the launch of this capital increase of 1 billion euros via the issue of 76.86 million new shares at a price of 13 euros per share. This price reflects a discount of 30.4% compared to Friday’s closing price of 18.69 euros.

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Moderate dilution

The capital increase maintains the preferential subscription right (DPS) for existing shareholders, which means that the holders of the group will be able to exercise this right to subscribe as a priority to the newly issued shares, and thus avoid being diluted.

Each shareholder will receive one DPS per share held and must exercise five DPS to subscribe to one new share. Holders who do not wish to exercise their PSRs or only partially will be able to sell them, since the PSRs will be listed from May 28 to June 6 on Euronext. After this date, the DPS value will be zero.

In terms of dilution, Alstom indicates, as an illustration, that a shareholder owning 1% of the group’s capital and not participating in the operation will see their participation reduced to 0.83%.

The subscription period for new shares will extend from May 30 to June 10 inclusive. The two largest shareholders of Alstom, namely the Caisse de dépôt et placement du Québec (CDPQ) and Bpifrance, will participate in proportion to their respective stakes, which will constitute a contribution of funds of 174 million euros for the first and 75 million euros for the second.

This capital increase constitutes the last pillar of Alstom’s 2 billion euro debt reduction plan. The company has also carried out or announced asset sales for 700 million euros and last week issued a hybrid bond (halfway between debt and capital) of 750 million euros. This financial instrument is considered 50% as equity by the Moody’s rating agency.

Defend the credit score

Remember that the aim of the operations carried out by Alstom remains to maintain its credit rating in the “investment grade” category, which brings together “good” debt issuers. Moody’s had announced that it would raise the outlook for the group’s “Baa3” rating (the last in the “investment grade” category) to “stable”, once all these operations had been completed. For the moment, the outlook for this rating is “negative”.

The credit rating, for Alstom, is particularly crucial. “The rating (the credit rating, Editor’s note) is key in general,” the CEO, Henri Poupart-Lafarge, explained to journalists in early May. This is both to obtain lower financing costs on the market but also to have more “availability of guarantees”, these guarantees being required by partners as part of commercial contracts.

On the Paris Stock Exchange, investors are not disconcerted by this announcement. The stock rose 5.2% around 10:40 a.m., with the market potentially welcoming the speed of the operation and the end of uncertainty as to its timetable.

More broadly, since the start of the year, Alstom has gained 58% on the stock market, helped by reassuring announcements and slightly better results than expected. The stock was also driven by brutal redemptions of “shorts” (what we call a “short squeeze”), that is to say investors who have sold the stock short and who are unwinding their positions (by repurchasing the stock), judging that the worst is now over.

“Alstom remains one of the most shorted stocks in Europe and we expect the short squeeze to continue as the group appears to be back on track in terms of cash flow dynamics and balance sheet structure”, Deutsche Bank wrote in early May.