Ann: NRW Share Purchase Plan, page-62

Here's Stephen Mayne in today's Eureka Report on the scale back. He's not a particular happy chappy mostly because, reading between the lines, he looks to have missed out entirely having an unmarketable shareholding on record date. Stephen is a serial holder of unmarketable parcels across his portfolio to get his foot in the door at AGMs and participate in SPPs where allowed. Despite his 'annoyance' with NRW, he does make some interesting points. Anyway here goes:

Capital raisings: thanks for nothing NRW Holdings

Our friends at Perth-based civil contractor NRW Holdings went out of their way to not help shareholders with an unmarketable parcel of shares in this month’s Share Purchase Plan.

After receiving $20.9 million in applications they could well have simply doubled the $10 million SPP and accepted all applications. After doing a $120 million placement, a $20 million SPP was not exactly large.

But no, they decided to stick with $10 million and came up with a scale back formula that gave no shares to anyone with an unmarketable parcel of shares worth less than $500 and a 64 per cent allocation for everyone else.

The company didn’t respond to any emails, so I sensed they would be one of those sensitive Perth outfits which would come up with a scale back formula to punish the party which dared to criticise or challenge what they were doing.

Past experience has produced harsh scale backs after engagement so I took the pre-emptive decision to top up the shareholding to a marketable parcel in the lead up to the scale back decision.

But NRW Holdings were onto this ruse as they set the scale back decision based on your holding on the record date, not the closing date of the SPP.

That said, there is clearly some scaled up rorting going on in the unmarketable parcel space because NRW revealed that 163 of its 1551 SPP applicants (a further 2750 retail shareholders didn’t participate at all) held just one share. At least I had 10 before buying another 155 shares on December 20.

If all the 163 solitary shareholders applied for the full $15,000 at $2.85, that is $2.445 million worth of applications and with the stock finishing at $3.22 on Friday, the collective paper gain would have been $317,421.

Given the company is capitalised at $1.34 billion, this really is a rounding error, particularly in the context of the $15.57 million paper profit which the lucky institutional participants in the $120 million placement are currently enjoying.

CommSec has recently changed its rules such that it is no longer possible to use their system to finish up with a single share. You can’t buy less than $500 worth of shares at a time and you can’t transfer an unmarketable parcel between CommSec accounts or even partially sell down a holding to leave a residual parcel worth less than $500. This is fair enough.

In terms of dealing with all those unmarketable parcels left on registers across the country, I would support a legal amendment that allowed companies to automatically compulsorily acquire stakes worth less than $50.

It would be unfair to do this using the existing figure of $500 because that is too high and many poorly performing companies turn investments that initially cost a shareholder thousands of dollars into something worth less than $500. Holders of these stocks are often managing their capital gains tax position and shouldn’t be compulsorily sold up against their wishes.