Head - just curious, why do you prefer a big placement above a...

Head - just curious, why do you prefer a big placement above a rights issue?

I've been through a few cap raisings by now, and tend to prefer rights issues. That may be because they fit my investment style better (they give an opportunity to drip feed further funds into a company at usually an attractive price). Their two main drawbacks, as far as I can see, are underwriting costs and the time it can take before the company can get its hands on the capital raised.

I am usually less a favorite of private placements, since I feel that they are unfair in the sense that a small group of investors gets (who at that stage may not even have invested in the company) get first dibs at a new issue at a price below market.

Having said that, in my experience it makes little difference in the long run. All to often the shareholders coming on board in a private placement end up selling out at a price very close to the issue price (so much for the 'sophisticated clients'), and the share price usually tends to grind away for a couple of months around the issue price of the placement before the register is purged. Hence the way I see it is that all of us are likely to get an opportunity to purchase at the issue price (or something close to that).

I guess we'll have to see what management has put together. I am pretty confident that it will be an attractive package. I went through the LYC cap raising a year ago, and like the way that was handled. It was a 1 for 1 which funded the company through to production in a single go, greatly simplifying matters down the track. The shareprice hovered around the issue price (45c) for a long time though, which was bad in the sense that holders had to wait for the register to clear, but it gave an excellent opportunity to get more shares at an attractive price (Of course, with the benefit of hindsight, I should have mortgaged the house and gone all in, but stuck to the plan).

But I'm still curious why you prefer a placement above a rights issue.