Here's what I think is likely to occur based on my US experience ... others may see it differently. To be clear I am talking about the NASDAQ ADSs and not the ASX shares (I own on both exchanges).
Firstly, refer to my post from yesterday morning
https://hotcopper.com.au/posts/48252402/single where I linked to the SEC filing and specifically drew attention to the "Underwriting Section" and short sales.
Evercore, Canaccord & ThinkEquity are the "Joint Book Runners" (who are typically pitching to institutional and hedge funds) plus Loop Capital & Roth Capital (who would have more of a long term buy and hold base and do most of the aftermarket trading) ... they make up the underwriting syndicate who would determine what the appetite is for the ADSs ... price and volume ... and they receive the underwriting margin (or spread) which is typically are 7% (although this is small so it may be a bit higher). The offer price is $25 so at 6.75% (same as prior raising) for their commission and expenses is $1.6875, PLL woud receive ~US$23.3125 per ADS and
assuming full over allotment (300,000) taken, the
company would raise ~US$53,618,750... which at FX 0.70 = AUD$76.6MSo roughly speaking, the underwriters are buying stock from PLL at ~$23.3125 to place to their clients at $25. What we can infer is that demand was higher than anticipated ... upsizing the issue from 1.5M ADS to 2M ADSs. I am a little disappointed at the price though ... and this explanation might be a little complicated so I am just going to try an talk it through.
(a) Underpricing = difference between closing price on first day of trade and the offer price
(b) Underpricing averages around 15% for all US IPOs over time. Using that underpricing average then the price is around $28.75
(c) I am using IPO averages ... and PLL is not an IPO (have traded on US exchanges for some time).
However the June raising was the first time ADS sold directly into the US markets. This raising, just a little over 4 months is hardly was US investors would call a SEO (Seasoned Equity Offering) as the track record is not there yet. What we have seen though is the demand for a company like PLL ... which has a different value proposition to ALB, LTHM, LAC, and the Aussie spodumene producers. We've also seen what happens when "dots get connected" such as the TSLA offtake. Its more validation than revenue.
Without "underpricing", underwriters would simply charge higher fees. Underpricing has its pluses, not the least of which is it leads to follow on business (no accident that most of June crew are back for October) and gets "happy investors" from successful IPO. Even now, with the raising upsized, investors would probably be thinking ... "should have asked for more" ... often called the "bandwagon effect". I did say I was a bit disappointed in the price. There was no indication at what it would be priced at (the logic could have simply been ... take last close $30, subtract 15% and price at $26.50). I would have like to have seen that and then the price also raised to say $27.50 .... creates upward sloping price curve and believe it not, studies show buyers increase their demand in response. This whole cycle becomes what is known as the "winner's curse" ... hot IPO's are oversubscribed and therefore you end up with less (as underwriters try to keep everyone happy) vs cold IPOs which no one wants and you can get as much as you want.
I realize this is not an IPO, but it is not too dissimilar. Now that the issue is priced and the book built, we come to the after market activities of the underwriters - and where the over allotment comes into play. This is the US market and rules may be different to ASX. Underwriters perform a "stabilizing" functions for IPOs, SEOs, secondary offerings, to either stimulate demand or restrict supply .... Also remember this is the NASDAQ so there are market makers/dealers that post the bid-ask spreads (it is NOT order driven like the ASX). There are 3 types of "stabilizing" actions that take place in the early days of new issue:
1. Underwriters (who may well be the market maker or defacto) post a
pure stabilizing bid to buy at a price
NOT TO EXCEED the offer price. Now if that sounds like manipulation to you - it is - and the SEC has recognized that since 1940, even saying
“Thecommission is unanimous is recognizing thatstabilizing is a form of manipulation”. However the
SEC chooses to allow pure stabilization but requires disclosure with special marks so thattraders will recognize it as a pure stabilizing bid.
We will see how stable PLL (NASDAQ) is which the halt is lifted.
2. IF in PLL's case, it appears that demand is high (issue was upsized) and trades above $25 ... meaning that stabilzation is not required and Underwriters sell the over allotment to maximize their profit.
3. IF there is any concern wrt to weak demand (trades below $25) then underwriters would ANTICIPATE the need to buy on market and would enter with a SHORT POSITION using the over allotment. In this case lets simply say they sell 2,300,000 (the 2M shares issued plus the over allotment) shares at $25. If the price drops to say <$24, then buy 300,000 shares on market ... making >$1 profit per ADS since they already have sold their over allotment at $25.
That is just one example of could happen. I understand at least one other poster does not agree with what I write .... but the prospectus backs me up. If you really want to know more about "Stabilization" then SEC Rule 104 is for you. Just remember this is a fixed price issue.
Lets see what happens.
(20min delay)