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AFR Dec 2 2015 at 12:15 AM Updated 16 mins ago

Santos causes re-think on PAITREO timetables

Santos' $2.5 billion rights issue will conclude with the retail offer shortfall bookbuild on Thursday. Brendan Esposito

by Sarah Thompson  Anthony Macdonald  Joyce Moullakis

Boardrooms may regard renounceable entitlement offers with rights trading for retail investors the fairest equity raising structure, but Santos' $2.5 billion offer has equity capital markets bankers, lawyers and fund managers re-thinking the way they are used.

Hedge funds and long-only investors will line up for round two of the $1 billion Santos guessing game on Wednesday, with the stock stuck in a no man's land between the retail portion of its rights issue and the shortfall bookbuild.

Santos retail investors had until 5pm Monday to subscribe for new shares at $3.85 each. Leftover shares will be auctioned on Thursday and renouncing shareholders will receive any proceeds above the offer price.

Arguably the most valuable piece of information in the market on Wednesday morning is the size of that retail shortfall book.

A big shortfall would make it hard for bookrunners Citi, Deutsche Bank and UBS to clear the stock above $3.85, while a smaller book could see the price pop above $4.15 a share.

Hedge funds and some of the more active long-only managers have already placed their bets. Consensus among the smart money on Tuesday was that the shortfall was likely be worth $900 million to $1 billion. [The retail portion of Santos' rights issue was worth $1.35 billion.]

Santos and its brokers were understandably tight-lipped on the likely offer size on Tuesday.

However, you have to wonder whether they will be able to keep that price sensitive detail a secret until Thursday's auction. Santos is not the first company to face the disclosure dilemma. However, its problem is exacerbated by the three-day window between the rights issue's close and the shortfall auction.

Traders reckon short-sellers are unlikely to rush to cover their positions through the shortfall bookbuild. A lot of the shorts are said to be structural bets against Santos rather than a play on its balance sheet. Short interest in Santos was 9.4 per cent as at November 24 - the most recently published number - having increased from 8.3 per cent before Santos' equity raising.

Finally, Trevor Rowe is stepping back from his executive chairman role at Rothschild Australia to become chairman of the independent firm, as revealed by Street Talk Online on Tuesday.

Robert Leitão, chairman of the Rothschild Global Financial Advisory business, and Rowe informed employees of the change, according to a memo sighted by this column. "We are pleased to announce that the co-heads of Rothschild Australia, Gareth Cope and Marshall Baillieu, will assume full executive responsibility for and leadership of Rothschild in Australia," the memo said.

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