Shares of Parker Drilling (NYSE:PKD) sold off on Wednesday morning and were down more than 16% at 10:30 a.m. EST after the company announced two offerings to raise cash.
Parker Drilling announced both common stock and mandatory convertible stock offerings. The company priced a 12 million share offering at $2.10 per share, raising about $24 million in net proceeds. On top of that, the company priced a $50 million mandatory convertible preferred stock offering at a 7.5% yield. The company intends to use these proceeds for general corporate purposes, including capital expenditures (capex), acquisitions, or repaying debt.
That said, Parker Drilling does not seem to need the money, because it ended 2016 with $120 million in cash and $90 million of undrawn capacity on its balance sheet. That's more than enough liquidity to finance its $40 million to $50 million in planned capital spending this year. Instead, the company appears to be following through on its plan to carefully manage liquidity so it can capture new opportunities. However, the common stock offering represents about 10% dilution to current shareholders.
Further, the $2.10 offering price is well below the stock's recent trading price. On top of that, the convertible nature of the preferred offering means even more dilution is in the future. That dilution, without a good explanation, just isn't sitting well with shareholders today.
Parker Drilling is paying a steep price for some incremental liquidity. While the company doesn't appear to need the capital, CEO Gary Rich did note in the company's quarterly earnings report last week that it was continuing its efforts to "aggressively pursue opportunities across all of our business lines." Because of that, it's hard to judge these offerings until the full picture develops.