Australia's unprecedented wave of capital raisings at the outset of the COVID-19 crisis will be followed by another wave of companies seeking to raise capital as economic impacts of the crisis linger longer for some companies and others seek capital for acquisitions and growth.

Following a "deluge" of capital raisings in the first half of the year, lawyers say there is likely to be another busy period for capital raisings after companies report their earnings over the next month or so.

"We would expect to see some companies that had been hoping or expecting improved financial performance may not realize that goal and so they need to go back to the capital markets to raise equity and to get their balance sheet in order and to set them up to continue to operate," said Robert Pick, a capital markets and mergers and acquisitions partner at local corporate firm Allens.

The economic impact of the novel coronavirus on Australia has been severe and may become more severe following a second outbreak in Victoria state, which has Australia reporting a record daily number of cases after it had previously suppressed the virus.

Companies will wait until after they have reported their earnings so they will be able to fully disclose their financials without having to issue a prospectus to raise more funds, Pick said. But he expects the rush for companies to bolster their balance sheets will be less urgent and that later this year some companies will start to raise capital for mergers and acquisitions of other businesses that are struggling.

"There might also be businesses that look at their business and operations and decide to either divest underperforming businesses or non-core business, and that can lead to M&A and the need for funding," he said.

Tech companies could also raise money to fund growth as the use of their services increases during the coronavirus lockdowns.

Australia corporate firm Clayton Utz is working on several capital raisings and initial public offerings for tech companies, said Stuart Byrne, a securities law and capital markets partner at the firm.

"More of our processes at the moment are what I call positive raisings rather than defensive, and that certainly is different from what it was earlier in the year and a positive sign for the economy," he said.

Many companies stopped issuing earnings guidance or retracted those they had issued at the beginning of the pandemic, but Clayton Utz is now advising some companies on whether they should resume the practice. While guidance isn't necessary for a capital raising, Byrne said it can make it easier by boosting investor confidence.

A rush of capital raisings from March kept Australian law firms' capital markets teams busy even as other practice areas slowed down. Over A$26 billion was raised in the 15 weeks between March 18 and June 30, 2020, according to a report by Herbert Smith Freehills titled "COVID-19 capital raisings: what we learned."

The 80 raisings of A$25 million or more had an average size of A$333 million.

Most of the raisings were undertaken by companies in sectors most affected by the coronavirus crisis—resources, consumer discretionary, information technology and real estate.

Companies raising cash included National Australia Bank raising A$3 billion, Newcrest Mining raising A$1.1 billion, Flight Centre Travel Group raising A$701 million, and construction and development company Lendlease raising A$1.15 billion.

More than half of the raisings were preemptive, to provide companies with liquidity and position them for growth. About a quarter were to address immediate liquidity needs, the HSF report stated.

Herbert Smith Freehills partner Michael Ziegelaar, who is co-head of equity capital markets in Australia, also expects another round of raisings, but said it may not be quite so large.

"We don't think it will be as large as the first rush because the first rush was quite large and a majority of those who wanted to raise funds have probably already done so. Also, businesses have had more time to consider the impact of COVID … and plan accordingly," he said.

The HSF report found companies chose the "simplest and quickest ways to raise capital in these uncertain times. Some 80% was raised by a placement and share purchase plan—the issue and sale of new shares to institutional and retail investors.

However, Zeigler said if factors such as volatile market conditions and lack of investor appetite make it difficult to raise funds in the future through traditional means, such as placements and share purchase plans, companies might raise funds by issuing shares to private investors, such as private equity. "It will be a shift in the type of work we do," he said.

Companies seeking to bolster their balance sheets will likely include real estate, financial services, and retail without an omnichannel, or cross-channel content strategy, given the challenges they may face due to COVID, he said.

The surge in capital raisings came as regulators in Australia loosened rules to temporarily allow companies to do placements equal to 25% of their issued stock, up from 15%. The concession has now been extended until November, which the lawyers said would continue to support more raisings.

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Capital Markets Lawyers Busy as Companies Rush to Raise Funds