Massive dilution coming
Because of US listing issues, Hexo did a reverse spilt of 1 to 4. The number of outstanding shares reduced to 122 m from 488m. Now the float is very small and the company wants to start diluting it again. Dilution is normally not a good thing for old long term shareholders who have a very high-cost base. It will reduce their prospects of recovering their investments.
Now Hexo wants to raise C$1.2 B or US 1 B. That is a huge amount of money to raise for a company with the total footing of the entire balance is $669m.where did they come with this amount and why?
Hexo has been one of the champions of burning cash. Their share capital is a little over $1B. with an accumulated deficit of $684m. With this poor track record of burning cash who would buy about 200 m shares with 1.2B. This is a very big amount. It seems everyone is going big and loading up for the war chest.
Some times firms just file a prospectus for a very large amount and raise a smaller amount. The duration of the prospectus is 25 months which means noting may happen for a long time.
I have seen companies file massive amount of prospectus and do nothing.
Maybe they are getting ready for some kind of a deal or a merger. For such a large amount they would need some major backing from big institutions. If they want to sell a chunk of the company to a large company they could issue shares from the treasury.