The Hartnell Colloquium
at ANU on Friday generated some fascinating debate about corporate law
from the 30 participants, who included the former ASIC chairman Tony
Hartnell, HIH Royal Commissioner Neville Owen and a bunch of lawyers
and academics.

The Chatham House rule applied so no individual comment can be
attributed to anyone without permission, but one of the most sensible
suggested reforms was to require listed companies to include forecasts
in the annual report each year. The forecasts requirement is the only
major difference between a prospectus and an annual report, but the
effect of the law in the market is that very few companies now raise
money by way of a rights issue which requires a prospectus.

Look no further than the Federal Government and Telstra, which is now
contemplating avoiding the rigours of a prospectus and a retail offer
by simply having an institutional placement. Rather than lowering the
disclosure standard by removing forecasts from prospectuses, a better
solution would be to increase it by requiring forecasts in all annual

There is something fundamentally corrupt about placements because they
involve a company hand-picking new shareholders in a process that
often dilutes existing shareholders who might not be on a “favoured
status” list with the underwriter or the issuer.

After raising money from institutions through a placement, many
companies now offer retail shareholders an opportunity to buy up to
$5000 worth of shares at the same price. However, this is also unfair
because it is not pro-rata.

A good example is property manager Macquarie Goodman, which last Monday
closed a retail share purchase plan (SPP) at $5.04 a share. The stock
is currently trading at $5.97 so it was a no-brainer. If I wasn’t
swamped in paperwork from having 120 stocks in the portfolio, a cheque
for $5000 would have been written out to lock in a lazy $958 paper
profit (17%) on day one. This would have exceeded my $500
investment in the company, but despite only owning 125 shares, I was
being an offered a chance to buy another 992 at a bargain price. The
wealthy retail investor with one million Macquarie Goodman shares was
offered the same, so clearly a pro-rata rights issue is far more
equitable but the prospectus requirements make it too hard.

All this is related to my Macquarie Bank board tilt as the platform
is to ban Macquarie staff from taking up shares in any issue the bank
is managing. Placements are open to preferential deals with the
Macquarie insiders whereas this can’t happen with a rights issue. The
argument against forecasts in annual reports is the supposed liability
issue but the law could be framed to minimise potential litigation.

We’ll draw up lists of placements and rights issues over the last five
years to demonstrate the point that the old fashioned rights issue has
virtually been killed off by these onerous prospectus requirements.
Email through any interesting examples to [email protected]

Peter Fray

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Peter Fray
Editor-in-chief of Crikey