(Bloomberg Opinion) -- Cash is scarce as the global impact of the coronavirus worsens. Yet the maker of Aston Martin sportscars has achieved a remarkable feat, retaining the support of rescuer Lawrence Stroll and a syndicate of banks even as the crisis has worsened. They have re-engineered a fundraising that now threatens heavy dilution on shareholders. Still, the alternative would be even worse.
Aston Martin Lagonda Global Holdings Plc saw its share price halve in the weeks after announcing a 500 million pounds ($548 million) capital increase at the end of January. The deal envisaged Canadian fashion billionaire Stroll injecting funds for a 17% stake, then putting in more cash with existing shareholders in a rights offer. The new plan sees Stroll put in less, but for a 25% holding.
Current shareholders will have to dig even deeper on the subsequent stock sale. The price of that cash call has been slashed to just 30 pence per share, requiring Aston to issue an eye-watering 1.2 billion new shares at a humiliating 86% discount to the closing price last week.
It’s awkward that attempts to reset the business stalled before they even got started. But in reality Aston has been incredibly lucky: it began lining up the rescue before coronavirus became a global pandemic. The revised fundraising is underwritten. Other companies that now face a virus-induced liquidity crisis might not be as fortunate.
Unless investors vote in favor of the plan, Aston could enter administration or liquidation within a matter of weeks, the prospectus warns. The stock is down over 90% since its market debut. Shareholders’ choice is grim: put in more cash, or sell their entitlement to the new cheap stock but suffer enormous dilution.
Will the rescue be enough to put Aston on a sustainable footing? The economic freeze caused by measures to contain the coronavirus makes it hard to know. Aston depends on loyal customers putting down fat deposits for so-called special vehicles that aren’t delivered for months or even years. If these repeat buyers became more circumspect about new purchases, cash could flow out of the business.
As for the core range, demand in China has already taken a hit. Production could be interrupted either at Aston’s own factories or because suppliers face difficulties. There were high hopes for its new sports utility model, the DBX. Sales now can only be guesswork.
The difficulty is that even if it overcomes this treacherous period, Aston’s medium-term prospects don’t look rosy. Pricing power is inferior to Ferrari’s. Suspending development of electric vehicles due to the cash shortage could cause Aston to fall behind in crucial low-emission technology. Cash burn will remain negative for at least the next couple of years, according to the Bloomberg-compiled analyst consensus.
Stroll says that while Aston’s global market environment has changed, his consortium’s commitment to help fund the business through this time has not. That may be so. But the commitment will keep being tested.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
©2020 Bloomberg L.P.