Ann: Trading Halt, page-59

‍Paladin does away with book builds, targets shorters

Uranium miner Paladin Energy and its underwriter JP Morgan have done away with the traditional back-end book build as part of its $205 million raising,which could set hedge funds scrambling and see the stock pop when it resumes trading on Wednesday.

JP Morgan wall-crossed a number of funds late last week,before wrapping up $100 million in sub-underwriting commitments.Part of the pitch was that it would be the funds’ only way to get their hands on Paladin stock as part of the placement and rights issue, with no book builds offering rights not taken up by existing shareholders.

Itmeansifhedgefundsshortthe stock–andthereareafewwith11per centofPaladin’ssharesheldshortand almostallofthestockborrow exhausted– theycannotcovertheir betswithcheapstockattheraising. Instead,theywillneedtofindother waystodeliverentitlementsharesto rightfulowners.

And while the raising was done at a steep 23 percent discount to the theoretical ex-rights price,which plays ‍in to the hands of the shorters,Paladin is hopeful its stronger balance sheet and strategic investor HOPU Clean Energy(Singapore) should help drive the share price north.

It remains to be seen whether the story plays out.But if it does, we wonder whether this will signal a renaissance for up-front sub under writing in the wake of Arrium’s shock raising.There were plenty of lessons for companies, bankers and investors in Arrium’s $754 million deal, and sub-under writers were perhaps the hardest hit. Paladin also revealed on Monday it remained in talks with other potential strategic investors, believed to be Chinese and French utilities providers. Fund managers, though,have heard most of it before and reckon it’s worth waiting until pen hits the paper on any new deals.