the australian 18 aug

Appears, other than a couple of very generous retail shareholders on HC, everyone thinks this stinks:

Capital issue: time to check the dilution of holdings

SHAREHOLDER: Stuart Wilson | August 18, 2009
Article from: The Australian

THE past 12 months have seen in excess of $90 billion of equity raised by Australian companies.

That's a lot of cash. In fact it is said to be about 15 per cent of equity raised globally in that period. It makes sense that much of this amount will have needed to come from institutional investors.

What does not make sense is the number of companies not taking advantage of the capital raising structures unique to Australia which allow shareholders who have the cash to stump it up and avoid dilution.

Australia, unlike Britain and the US, has a system whereby companies can raise capital in an accelerated renounceable entitlement offer (or accelerated rights issue). Like a traditional rights issue, an accelerated rights issue offers securities on an equal footing to all investors: same price, same pro-rata entitlement.

Unlike a traditional rights issue, an accelerated rights issue allows different timing so that capital can be raised from institutional investors more quickly. In 2008, ASIC extended disclosure relief to accelerated rights issues and to the offer for the shortfall, which might be needed to mop up an under-subscribed issue.

Despite the regulator's best attempts, many companies have ignored this equal opportunity capital raising avenue in favour of an institutional placement. Sure, most have then chucked in a share purchase plan (SPP) at the end, but at a maximum of $15,000, it's a sop, not an opportunity to avoid dilution.

Over-subscription of a number of SPPs has proven that retail appetite is strong. Some companies have failed to even throw investors this small bone.


Take Amadeus Energy. This oil company proposes to raise $25 million via a placement with the institutional and "sophisticated" clients of Perth broker Hartleys. In a completely unfathomable move the offer will increase the number of shares by about 50 per cent, with the stated purpose to "strengthen the balance sheet".


Westpac, CBA, NAB, Qantas, Tabcorp, Crown -- the list could take up most of this column -- all raised capital with a placement followed by an SPP in the past 12 months. With the exception of CBA's raising in 2008, when it needed funds urgently to purchase Bankwest, the capital could have been raised under a traditional or accelerated rights offer.

Sure, a rights offer is a bit more complicated, but that's a small price to pay for the protection of retail shareholders. Institutional raisings are said to be less expensive, but tack a share purchase plan on the end and it's difficult to see how. With investment banks already taking fees of hundreds of millions of dollars out of these deals, it's mind-boggling that it could cost more.

ASIC has been trying, largely in vain, to encourage a level playing field for investors -- or at least a shot at it. But the lesson of the past 12 months is that many companies are simply not playing ball. Providing them a carrot to do the right thing is fine, but maybe it's time to apply a bit of stick, because retail investors' holdings and dividends are being diluted beyond recognition.

Stuart Wilson is chief executive of the Australian Shareholders Association