Xero shares fall after pricing $1.4b convertible notes offer
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The news: Shares in Xero fell on the ASX after the accounting software provider priced its convertible notes offer at USD925 million ($1.39 billion).
The numbers: Xero said that net proceeds of around USD908 million will be used for potential acquisitions and strategic investments, the partial buyback of existing convertible notes, and other general corporate purposes.
Xero shares tumbled 3.7% to $126.89 by 11:40am after the Wellington-based company halted trading earlier this morning. Over the last 12 months its share price has surged 15.5%.
Xero said the notes will bear interest at a rate of 1.624 per US cent per year, with interest payable in arrears on 12 June and 12 December of each year, beginning in December 2024 and ending in June 2031.
The initial conversion price of the notes is USD109.65 per ordinary share, representing a conversion premium of 30% over the reference share price.
After trading closed on Tuesday, Xero unveiled its USD850 million convertible note offer. Citi analysts said the note "essentially replaces" the existing USD700 million convertible note that expires in 2025 and "does not come as a surprise".
The context: Xero's fixed coupon guaranteed senior unsecured convertible notes are to be issued by its wholly owned subsidiary, Xero Investments, and guaranteed by Xero. The company said it intends for the notes to be listed on Singapore Exchange.
The Citi analysts noted that Xero's move is a "clear indication that M&A is part of Xero's growth strategy in the next few years".
What they said: Xero's chief financial officer Kirsty Godfrey-Billy said: "We're pleased with the response and the very strong demand for this offer. This will provide us with flexibility as we continue to execute our strategic priorities".
The sources: ASX announcement, Citi research
