Sign of the times..
Placements, rights issues prepped for makeover
Mar 30, 2020 – 9.34pm
Pro-rata rights issues are expected to be included in an emergency equity raising relief package designed to help companies raise funds to weather a sharp decline in earnings.
As Street Talk revealed on Monday, market regulators ASX and the Australian Securities and Investments Commission were putting the finishing touches on changes to ASX Listing Rules, which determine when and how listed companies can raise fresh funds.
While the first place to start is private placements – where themaximum size is expected to be lifted to 25 per cent of a company's issued equityin a 12-month period from 15 per cent – lawyers reckon the regulators are also preparing to relax rules around rights issues.
As it stands, ASX Listing Rules say a company can offer no more than one new share for every share an investor already owns, unless the deal is renounceable and investors are compensated for not taking up their rights.
However, lawyers expect the regulators will allow companies to issue up to two shares for every one already owned under non-renounceable structures. That move has already been made in New Zealand.
It means a company should be able to raise twice as much money in gun-to-the-head style non-renounceable deals than it had been able to.The changes are sure to be welcomed by investment banks that make money from underwriting and selling equity raisings.Placements and non-renounceable deals are the two least risky structures for the banks to underwrite. Placements require banks to be on risk for a matter of hours, while non-renounceable deals provide strong incentive for shareholders to take up their rights.It remains to be seen, though, whether the regulators' measures will address the biggest problem boards and their bankers face when trying to protect existing shareholders from dilution.
The retail portion of entitlement offers take 14 business days to play out and investment banks don't want to be on risk for that period of time. They typically ask sub-underwriters to take at least the bulk of that risk, however sub-underwriting is proving tough in the current market as seen at Webjet last week.It is understood ASIC and ASX have already consulted lawyers, bankers and other industry practitioners on the proposed increase.It comes as companies and their bankers consider raising equity to meet near-term liquidity needs and shore up balance sheets.
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