NEXTDC Announces $281 Million Equity Placement

Earlier today, NEXTDC (ASX: NXT) made an announcement stating its intention to purchase three new commercial property sites in Sydney (S3), Melbourne (M3) and Perth (P2).  The decision to acquire the sites, earmarked as future data centre developments, is driven by advanced negotiations with several large customers and preparation for future growth.  To fund these new purchases, NEXTDC has also launched a $281 million equity raising underwritten by Citigroup (“the Placement”).

The Placement consists of a $150 million cornerstone investment by UniSuper at a 2.5% premium to Placement Price and a $131 million general placement for institutional investors.  The Placement has an underwritten floor price of $6.43 per share, representing a 5.6% discount to the last close price.  NEXTDC’s Directors have also committed to take up their full entitlement of $15,000 worth of shares under the Share Purchase Plan (SPP), which is scheduled to open on Friday April 27, 2018 and close on Tuesday May 15, 2018.

As part of the announcement, NEXTDC announced plans to allocate the $281 million via the following: an $87 million in the S3 acquisition, $22 million in the P2 acquisition, $80 million for P2 initial development (1MW+ capacity) and $92 million in the M3 acquisition and for general corporate purposes.

We view the raising as having positive credit implications for NEXTDC, increasing the level of cash and tangible assets of the company going forward. Importantly, the use of equity capital for the purchases will decrease NEXTDC's debt-to-equity ratio and represents a credit-positive move for the company. The outlook for NEXTDC remains positive, and this forecast growth in demand should boost revenue and cash flow in the future.  For now, our recommendation for NEXTDC Notes III remains unchanged on a Hold and which follows very significant margin compression from launch.