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CBA’s $5b raising hit by volatile markets

Commonwealth Bank’s shortfall in raising $5 billion in capital from its shareholders highlights a lukewarm response from investors towards the sector, analysts say.

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Shares in Australia’s biggest bank were halted from trade on Friday as the lender said it would offer around $1.5 billion in shares in a retail bookbuild.

That process will allow other investors to buy the new shares not taken up by the bank’s shareholders.

Only about half of the shares from an expected $3 billion rights entitlement offer were taken up by CBA’s retail shareholders, despite the stock being offered at a discounted rate.

The large shortfall in the take-up by retail shareholders can be attributed to the timing of the offer and weaker valuations for bank shares, analysts said.

“Unfortunately for them, it was very bad timing as the market has been very volatile,” IG market analyst Angus Nicholson said.

“Bank valuations have also corrected sharply as their growth outlook has worsened.”

The big four banks have been investor magnets due to attractive dividend yields, but their shares have tumbled as much as 15 per cent since early August.

All four are currently trading below their long-term average price to earnings ratios, as investors have increasingly questioned their growth prospects amid weaker economic conditions.

CBA launched its $5.1 billion raising in August to comply with a move by the Australian Prudential Regulatory Authority to bring the big four’s capital reserve levels into line with the world’s top financial institutions.

The bank first raised $2.1 billion from institutional shareholders, but its retail offering was caught up in market volatility in recent weeks.

During the raising window, CBA shares traded as low as $71.97 each, barely above the $71.50 discounted price offered under the capital raising, prompting many investors to ignore the entitlement offer.

The lender expects the retail bookbuild to be completed by September 14, and the entire $5.1 billion capital raising is fully underwritten.

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