Debenhams Shares Plunge Following £35m Equity Fundraising Confirmation
Shares in Debenhams Group plummeted by ten per cent in early trading on Tuesday after the Manchester-based fashion retailer confirmed plans to initiate a £35m equity fundraising round. The company, recently rebranded from Boohoo Group, announced the move to address speculation about its financial stability, but investors reacted negatively as the share price declined.
Fundraising Details and Investor Reaction
The board of Debenhams stated that the fundraising would enable it to complete its revival and provide increased liquidity alongside a more robust capital structure. However, this assurance did little to stem the sell-off, with shares opening at 21.00 pence, down 6.7 per cent from Monday's close, before dropping further to register a ten per cent decline overall.
Dan Coatsworth, head of markets at AJ Bell, noted that the new shares will be issued at an 11 per cent discount on Monday's closing price. Key directors, including Mahmud Kamani, Dan Finley, and Iain McDonald, intend to participate in the fundraise, each at a price of 20p per share.
Strategic Moves and Financial Goals
In addition to the equity raise, Debenhams' board is seeking to gain further financial flexibility from its lending group, contingent on the successful completion of the fundraise. The capital raise represents the group's latest effort to reverse its fortunes, as it presses ahead with plans to drive growth and reduce debt.
The board expressed confidence in achieving £50m in adjusted earnings for the current financial year. By simplifying operations, the group is eliminating significant costs, which it hopes will bolster its comeback strategy.
Market Analysis and Future Challenges
Mr. Coatsworth commented, "Getting debt under control is a gamechanger for attracting a wider pool of investors and convincing the market that the company has a solid future. The company is certainly making the right noises regarding its comeback, but there is still a lot of work to be done."
He added that Debenhams needs to continue cutting costs and find ways to grow sales across the business without resorting to massive discounting. This fundraising follows recent uncertainties, including a confrontation with Sports Direct founder Mike Ashley over a board position, which the group aims to move past.
Debenhams Group, which owns brands such as PrettyLittleThing and Karen Millen, decided last month against dropping the PrettyLittleThing label, citing a rebound in sales after a revamp of its image. The group's shares, trading under the Boohoo name, reflect ongoing challenges in the competitive retail sector as it strives for stability and growth.
