11:33 AM EDT, 03/11/2024 (MT Newswires) -- Albemarle's (ALB) convertible equity raise last week was "expensive," Morgan Stanley said in a note Monday.

On Friday, the chemicals company closed its offering of depositary shares, each representing a 1/20th interest in a series A mandatory convertible preferred share.

Morgan Stanley said it cut its price target to $81 from $90 and maintained its underweight rating on Albemarle to take into account "the net dilution from the issuance."

"In addition to the mandatory conversion, which will increase the share count by 11-15%... the company will pay a 7.25% dividend on those shares between now and then," the investment bank said.

The amount translates to total cash outlay of about $430 million, or roughly "20% of the raise itself," Morgan Stanley said.

"We believe that Albemarle is paying this dividend versus issuing straight equity in part because it expects its share price to be meaningfully higher by the time of conversion and thus only see dilution at the lower end of the range," the firm said. "Of course, we also do not know how much more dilutive a straight equity issuance would have been last week without this sweetener."

Albemarle shares were up 4.8% in recent trading.

Price: 124.45, Change: +6.11, Percent Change: +5.17