Why is Bubs stock price crashing 15% today?

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The Bubs Australia Ltd (ASX:BUB) The stock price came back from its trading stop and plunged deep into the red.

In morning trade, shares of the junior infant formula company are down 15% at 54.5 cents.

Why is the Bubs stock price falling?

Investors sold Bubs’ share price today after the company completed the institutional component of its fundraising.

According to the release, Bubs raised $32.4 million through an institutional placement of 62.4 million new shares and $7.7 million through an institutional right offering. These funds were raised at a steep 18.8% discount of 52 cents per new share.

Bubs President Dennis Lin commented:

We are satisfied with the support given by institutional investors to the capital increase. We are delighted to welcome new shareholders to the register and are always grateful for the participation of our existing shareholders. Both trusted Bubs and our commitment to seizing future opportunities.

Commercial offer

The company will now pursue its retail rights offering, which aims to raise an additional $22.9 million. Eligible shareholders will be able to subscribe to 1 new share for every 10.42 shares held at the close of play on Thursday.

However, retail shareholders may feel a bit offended here, in addition to being diluted by the fundraising, they won’t get as generous a rebate as institutional investors received.

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

Why is Bubs fundraising?

Bubs is raising money on the belief that its recent surge in US sales due to supply shortages won’t be a short-term thing.

Proceeds from the offering will be used to support working capital, inventory and growth initiatives. The latter includes its expansion into the United States and increased manufacturing capacity 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 is certain, however, and that is that retail shareholders are no doubt hoping this is the last time Bubs needs to raise money.

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