Hey Plough. Put yourself in ADX management's shoes. Going to existing Shareholders is expensive for companies run on a shoestring. All that paperwork and management time, it's a slow process and you need to pay a lot to a broker to put all the pieces together. Also, existing shareholders in Small Caps are often reluctant to fully support Cap Raisings and a shortfall does not look good for anyone.
Far easier, cheaper and quicker to phone up someone like Cannacord for a turnkey solution. These specialist operators are set up and ready to go to do just this, as a normal part of their business. [They put the F into Capital Formation, we might say].
I'm sure you've been around long enough to know that the business model of the sophs* who buy into these CR's is not usually to buy and hold. But for general information these people are buying the Cap Raise to flip and the usual aim is to sell their discounted shares at an immediate profit. Usually a free Option attaches also, which at the worst gives the sophs a little insurance because it too can be traded for a profit if the share price tanks below the issue price after the Raise.
This Raise was at 10.5 cents. Quite often the share price subsequently drops below the issue price, as it has done this time so there has been ample opportunity for existing Shareholders, or anyone, to buy on market at a price less than the Cap Raise. Win-win! The Company gets more finance and existing shareholders can top up at less than the Cap Raise price.
*Sophs stands for 'sophisticated investors'. See the ATO's website for a definition. It used to be that you needed a pretty high net worth to be a soph, or alternatively a high income. The ATO assumes because of your financial position you know what you are doing without needing to be walked through a full Prospectus. These days anyone owning a pretty ordinary Sydney house qualifies.
ADX Price at posting:
10.5¢ Sentiment: None Disclosure: Not Held
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