REUTERS: Tesla Inc will raise up to US$2.3 billion in new capital, renouncing what Elon Musk called a"Spartan diet" and easing Wall Street concerns about the money-losing company's ability to overcome a drop in sales and build new product lines.
Shares of Tesla rose 4.3per cent to close at US$244.10, while the yield on Tesla's existing US$1.8 billion junk bond fell to its lowest level in over a month. For over a year, Musk had insisted that the money-losing Silicon Valley automaker had no need for a capital raise, saying that high Model 3 volume and efficiency would push the company to profit in all quarters of 2019. That changed with a US$702 million loss in the first quarter, and warnings that profit would be delayed until the latter half of the year.
Throughout its history, Tesla has raised funds through bank loans, equity sales, convertible notes, a junk bond sale, securitization of its vehicle leases and solar asset-backed notes. The convert is being marketed with a higher conversion premium than its last convertible bond, issued in March 2017, meaning Tesla shares will have to rise by an even larger magnitude to trigger a conversion to equity.
The yield on Tesla's existing US$1.8 billion junk bond fell to its lowest level in over a month at just over 8 percent on Thursday after the news, roughly 2.7 percentage points above its 5.3per cent coupon.
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