The article below was written by Terry McCrann (Herlad Sun) when REH announced the cap raise. I also note that Ramsay announced a $1.4b cap raise this morning.
I agree Thunder about the RHP cap raise as I was about to invest then bang! gone!
I have sniffed around REH for a couple of years looking for a good entry point but this cap raise has thrown me a curve ball with the numbers. Likely to stay on the watch list until the next annual result.
Terry McCrann: Reece stops investment bankers cashing in | Herald Sun Terry McCrann: Plumbing supplier a shining light, despite ASX and ASIC green-lighting investor rip-off
Our fake regulators, ASIC and the ASX, opened the flood gates for retail investors to be ripped off. But plumbing supplier Reece isn’t joining the feeding frenzy, writes Terry McCrann. Terry McCrann, Herald Sun
April 6, 2020 10:40pm
Talk about Manic Monday: after our two fake regulators, ASIC and ASX, combined to declare ripping off retail shareholders an essential service, the investment banks got to work with gusto.
One exercise yesterday though, stood out from the rest — and I will pretty confidently predict that by the end of this whole sordid and grubby period, it will still be the standout from the general retail investor gouging.
Directors of Reece went out of their way to ensure that the company’s retail shareholders were not ripped off and the underwriting IB, JP Morgan Securities, had to grin and bear it.
There were two reasons why Reece did what it did and was able to do it.
First and most importantly, Reece didn’t actually need the money — unlike all the others which were basically sitting somewhere on the post-virus survival spectrum from “desperate” to “despairingly uncertain”.
Publicly listed Reece is Australia’s biggest plumbing and bathroom supplier.
Reece was acting very astutely, opportunistically, to strengthen its balance sheet for generalised growth but also to be able to pounce if the economic and financial turmoil delivered acquisition bargains.
This shifted the balance of negotiating power from the IB and the institutional investors to the board; and the board were prepared to exercise that power because the controlling Wilson family has “skin in the game”, owning 73 per cent of the stock.
They were also using the placement mechanism to broaden their insto shareholding base – another element in the canny future-looking and value-building (for all holders) move.
This combined to deliver a reasonably minimal discount of 12.5 per cent for both the placement and the pro-rata offer prices compared with the last price on-market.
In addition, the equity and value-diluting placement was only 9 per cent of the pre-issue capital — not the utterly outrageous 50 per cent-plus that the fake regulators, ASX and ASIC, are allowing in their mindless stupidity.
So the Reece exercise stands out dramatically from the massive dilution of equity and the direct transfer of value from existing retail holders we are seeing in all the other capital raisings, in the name of virus emergency.
Reece has deliberately avoided ripping off retail investors, says Terry McCrann. Picture: Anna Rogers
Even more impressively, Reece directors added something I’ve never seen before — the retail equivalent of the insto placement — to as best as possible protect retail
under the anti-retail rules set by the fake regulatory duo to benefit the IBs and instos.
Retail get to participate in the pro-rata issue on the same terms as the instos. But in addition they can subscribe up to $30,000 (the regulatory limit) in an SPP.
Reece didn’t spell it out, but it seems likely that will be open-ended; that Reece will accept as much as retail holders want to invest.
The Reece statement explicitly noted this was being done to allow those holders to minimise the dilutionary impact of the placement.
So we have placement, pro-rata issue and countervailing “placement”.
In doing so, Reece has shown exactly what every company should be doing when they go down this path of emergency placement, with or without an accompanying pro-rata issue.
Let me make two things clear.
First, I perfectly accept the use of placements, even in “normal” times, as the most effective market exercise to raise money quickly and with certainty. And obviously they have to be done at a discount.
Reece isn’t flushing its retail shareholders down the loo.
But every company must also follow them with some form of pro-rata issue or
SPP to give retail shareholders, and indeed those instos not invited to the placement party, (why the issue is needed) to minimise the loss of both equity and value: two very different things.
And if company boards are incapable of understanding this and they almost universally certainly are so incapable, real regulators would mandate it.
We do not have real regulators.
Reece has shown precisely what should and can — so very easily — be done; and done under the existing (defective) rules.
If anyone is awake down at the ASX or at ASIC, the Reece model should be made mandatory.
It retains the placement ability, but adds retail equity as best as possible.
(20min delay)