placement nc, page-43

Hi Lockitt - re "Sophistictaed Investors"
You made me do my homework...

Sophisticated Investors
Source:
https://sec2.citismithbarney.com.au/Access/Dyn/Content/ourservices/internationalinvestments/investors.html

1. You invest a minimum of $500,000 in what would normally be an excluded offer; or
2. You provide a Certificate from a Qualified Accountant that you:
a. have net assets of at least $2.5 million; or
b. have a gross income for each of the last 2 financial years of at least $250,000 a year.

Share placements and the retail shareholder
Source:
http://www.asic.gov.au/fido/fido.nsf/byheadline/Share+placements+and+the+retail+shareholder?openDocument

Companies these days quite frequently sell additional shares to raise money through 'share placements'. These are offered only to institutions and sophisticated investors. Companies may invite existing retail shareholders to top up their holdings, but only up to $5,000. Why?

Share placements allow a company to raise up to 15% of their current capital base:
• without seeking shareholder approval and
• without going to the trouble and cost of a formal prospectus.
The company often uses the money it raises in a placement to take over a new business or to significantly expand the company's activities.

In the past, companies have sometimes struggled to raise money through the traditional offer of rights to subscribe for more shares, called a 'rights issue'. They often had to pay underwriters sizeable fees to make up for any shortfall in the money raised this way.

As the Australian market has grown, companies have found institutional and sophisticated investors willing to come up with extra capital, often in large amounts, within 24 hours. Generally, institutional and sophisticated investors invest at least $500,000.

Many companies believe the speed and cost savings make placements a better choice than a traditional rights issue.


The Corporations Act distinguishes between investors who need protection (through a regulated disclosure document) and those who do not.

Parliament considered it necessary to have 'prospectus quality' information for retail shareholders. A full prospectus must contain all the information these investors or their advisers need to decide if the investment suits them. Information of this quality costs time and money to prepare. To prepare a prospectus often requires planning some months in advance.

On the other hand, institutional and sophisticated investors are assumed to have the ability and resources to:
• analyse market announcements and financial information and
• make up their minds quickly.
In a placement, institutions get only limited information from the company, and they must make snap decisions over large amounts of money. That's not so easy as it sounds, and even institutions can make mistakes. For example, if the placement is helping pay for a takeover, the new business may prove far less profitable than originally expected, causing the company's share price to fall.

To reduce their risk, institutional investors usually seek a 'discount' to the current market price of the company's shares in case the market price falls after the placement is completed.