Versarien (LON: VRS) shares are 18% down on the management having the temerity to even ask for permission to do a rights issue. The assumption seems to be that if they're going to ask for permission then, well, they're going to use it. And yes, rights issues often do depress share prices for obvious reasons. They have to be sold at a discount and also there will be more of them around - both things which prompt share price falls. Finally, or thirdly, there's also that reason why an issue might be necessary - here it's running out of money which is another downer for share prices.
The announcement itself: “As detailed in the interim report released on 9 June 2023, as part of the turnaround strategy, the Company is marketing for sale both its mature businesses and the IP and assets acquired from Hanwha Aerospace in December 2020. If the estimated proceeds are received it will provide a sufficient cash runway for the Company's anticipated needs over the next 24 months. However, the timing of the asset sales and the quantum of the funds that may be received is uncertain, so the Board considers it prudent to ask shareholders for new authorities at the General Meeting in order to provide the Company with the ability and flexibility to raise further funds through the issue of additional equity capital should it be required.” That “should it be required” is carrying a lot of weight there. The assumption - given that share price reaction - is that it will be, if granted.
Versarien share price from London Stock Exchange
We've looked at Versarien before and we said this about it: “But here's the thing - we need to find someone to pay for this. We've not got a proper carbon tax - something that would solve this economic problem. We've also not got a proper permit trading system. So it's very difficult to monetise this reduction in emissions. So, while the process works it's difficult to see how money will be made out of it - unless people voluntarily pay for the emissions reductions. Which some will, but will the general market?”
We do think they've got an interesting niche product there. But we're very unsure about whether there's a large or significant market for it.
The general problem right now though is that unless Versarien can sell some parts of their business they'll not have enough cash to keep running the other parts of it. Thus that decision to ask for permission to have a rights issue “should it be required”. And the general assumptions seems to be that if that permission is granted then it will be used.
