opening price predictions, page-23

From The Age tomorrow:

Asciano deal illegal in UK

If it is good enough for Rio Tinto to let shareholders sell their rights it should be good enough for everyone else.

Indeed, the majority of the $40 billion-plus in capital raisings we've seen so far in 2009 would be illegal in the UK under their fairer and more transparent system which dual-listed Rio Tinto was obliged to follow.

If anything, the situation is getting worse because Asciano's effort yesterday really scraped the bottom of the barrel.

Ironically, the British government will be the biggest beneficiary of the $2 billion Asciano raising because the taxpayer-controlled Royal Bank of Scotland is the biggest lender to the troubled infrastructure giant with loans outstanding estimated to exceed $500 million.

The problem of placements

The main problem with the Asciano raising is the size of the placement component. Placements are inherently dubious because it involves a board and under-writer hand-picking who gets discounted stock.

You can be Ivan Milat sitting inside Goulburn prison, Iranian President Mahmoud Ahmadinejad or Warren Buffett - it doesn't matter because if the board gives you the nod, you're in, regardless of whether you already own shares in the company.

There is no transparency around the selection process and the system is wide open to abuse and full of conflicts of interest. Directors won't want to place shares with investors who want them sacked and Asciano's underwriters RBS and UBS have an interest in looking after the directors which have agreed to pay them a $45 million fee.

Australian law doesn't permit a company to place more than 15% of its shares each year without shareholder approval and that is why Asciano shareholders will gather to vote in Melbourne on July 22.

Asciano's 1-for-1 entitlement offer at $1.10 is straight forward enough because that will raise $768 million and double the shares on issue to 1.4 billion whilst treating everyone equally. Everyone, that is, who has a registered address in Australia or New Zealand because ''foreigners'' won't even be sent the prospectus in a bizarre Down Under version of financial protectionism.

Asciano's special deal for Rowsthorn

Asciano's $1.38 billion placement gives a rails run to car-racing enthusiast, CEO and major shareholder Mark Rowsthorn.

After dithering for months and imperilling the whole debt-laden company by refusing to raise capital that might dilute his position, Rowsthorn has now negotiated himself a couple of special deals.

The biggest is the proposed private placement of 137.1 million shares to Rowsthorn at just $1.10 a share provided shareholders approve it on July 22.

Rowsthorn won't have to make this investment decision for another six weeks and by then he'll be hoping Asciano will have been re-rated in the same way shares in Wesfarmers, Bluescope Steel and Fairfax Media (publisher of this website) surged after decisively dealing with their debt challenges.

You can tell that Asciano is sensitive about the special deal for Rowsthorn and the institutional insiders when they include this line in their raft of ASX statements yesterday:

''To the extent that there is significant unsatisfied demand in the retail entitlement offer, Asciano will consider conducting a Security Purchase Plan offer to eligible securityholders (subject to obtaining the necessary regulatory approvals).''

A whiff of fish

When a company with just 699 million shares on issue that last traded at $1.82 suddenly decides to place 1.255 billion of new shares at a 40% discount of $1.10 you're entitled to wonder if something fishy is going on.

And the fishiest element is the way Rowsthorn appears to be simultaneously lining up with the institutional insiders and the retail investors to maximise his position.

Asciano announced yesterday that the retail component of the $769 million 1-for-1 entitlement offer is $439 million or 57.1%, suggesting Asciano has close to the highest proportion of retail ownership of any major Australian company.

That's because Rowsthorn is buying himself time by lining up in the retail offer, rather than the indecently rushed accelerated institutional offer taking place right now.

Rowsthorn is the largest Asciano shareholder with 70.86 million shares or 10.79%. He is entitled to spend $78 million buying another 70.86 million shares at $1.10 in the 1-for-1 offer - but won't pay until it closes on July 13.

Given that the record date is June 18, Rowsthorn could start dumping his current shares as soon as trading resumes this week without losing the right to buy more. He then gets the chance to take a $150 million placement in late July at $1.10 a share.

The 2009 BRW Rich List estimates Rowsthorn and his 79-year-old father Peter are worth $573 million. Peter was one of the original founders of Toll back in 1986 and since retiring as Toll chairman in 2003 has poured close to $100 million of his fortune into the extravagant Wadham Park stables near Woodend in Victoria.

It is hard to believe that Mark Rowsthorn could and would want to come up with $229 million to take up his full Asciano entitlement and special placement to remain the largest shareholder. Whilst the $130 million stake is currently ungeared, pumping in another $230 million would trigger constant speculation about margin calls.

Biggest placement ever

As a proportion of issued capital, Asciano is attempting one of the biggest placements the world has ever seen. It finished last week with 699 million shares on issue and is now proposing a 380% increase to 2.653 million shares. Talk about dilution.

Corporate voting in Australia is already a manually driven mess and the July 22 Asciano EGM will be a major test of the system. If most of the institutions take up the placement, they won't be able to vote their stock on the resolutions seeking to approve the placement of 137 million shares to Rowsthorn and an additional 909 million share placement to the clients of UBS and RBS.

This could leave the heavily diluted rump of retail investors with enlarged power to vote down the deal. However, given all the fear and loathing about Asciano's $4.9 billion debt, investors will no doubt be frightened into submission, Oz Minerals-style.

Short-changed retail investors

The following list breaks down the institutional and retail components of the major entitlement offers so far in 2009 and also details whether there was a placement component to the raising:

Wesfarmers: retail component $3 billion or 60% of $5 billion entitlement offer. Institutions placed additional $900 million worth of shares.

Asciano: retail component $439 million or 57.1% of $769 million entitlement offer. Additional $1.38 billion placement to institutions and Rowsthorn.