The NAB board, soon to be led by former Treasury secretary Ken Henry, showed it had learned the lessons of Slater and Gordon when it opted for a PAITREO (pro-rata accelerated institutional, tradeable retail entitlement offer) structure in the $5.5 billion rights issue unveiled yesterday.
Institutions have 48 hours until close of business today to take up their entitlement in the two-for-25 offer at $28.50 or have their rights sold in a bookbuild to be conducted on Monday.
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Under Australia’s anything-goes capital-raising system, NAB would have been quite within its rights to do a heavily discounted $10 billion placement to the Iranian government. Indeed, NAB did $5 billion worth of discounted institutional placements during the GFC in 2008 and 2009 when it ignored the principle of property rights and heavily diluted retail investors.
This time it is different — and much fairer for all concerned. NAB is the most globally owned, Australian-headquartered and ASX-listed company to do an accelerated entitlement offer of this size, so big investors around the world will have been scrambling to make their decision.
The bank’s 500,000 retail investors have a little more time as rights trading commences for them on May 12 and runs for two weeks until May 25.
Rights trading is something that billionaires Gerry Harvey and Kerry Stokes refused to offer in their recent capital raisings, which heavily disadvantaged retail investors because non-participants were offered no ability to receive compensation.
A smart tactic for NAB’s retail investors would potentially be to wait and see how much compensation non-participating institutions get, and use that as a benchmark to decide at what price they should sell on-market.
Alternatively, retail investors who don’t take up the offer or sell on-market will have their entitlements sold off on June 4 in a bookbuild.
There has been no shortage of ASX capital raisings this year to demonstrate the different methods available in Australia’s highly flexible system. Here’s a summary:
Tabcorp distributes franking credits fairly
Tabcorb followed the lead of Harvey Norman by slashing its accumulated franking credits through a 30-cent fully franked special dividend, which was funded by a $236 million one-for-12 entitlement offer at $3.70.
However, there was no self-serving component, as with Gerry Harvey, because Tabcorp went for a PAITREO offer structure rather than an AREO (accelerated renounceable entitlement offer), so non-participating retail investors had two weeks to sell their entitlements on market.
The result produced a 92% take-up of the $142 million institutional offer, with non-participants pocketing an 81-cent compensation payment as the shortfall cleared at $4.51.
Participation in the retail offer, boosted by the rights trading, was quite healthy at 69% with total applications of $64.7 million.
The retail shortfall of 7.7 million shares cleared at $4.52, meaning retail investors received 1 cent more than the institutions in compensation. Hooray.
A rare win for retail, although the whole deal still saw retail investors slightly diluted as a class because the retail shortfall was sold to institutional investors.
Dexus fails to deliver VWAP (volume-weighted average price) discount
The property group announced a $400 million institutional placement at $7.32 earlier this month and is following up with a $50 million share purchase plan (SPP) for retail investors at $7.32.
However, the board refused requests to include a discount to VWAP pricing alternative, which means the SPP will probably finish short of the $50 million cap unless the stock recovers from yesterday’s close, which matched the offer price.
When boards offer a VWAP discount price, investors can apply early and relax, knowing that they have downside protection. When there is only a fixed price, you have to watch the market right up until the close.
The likes of Ansell, DUET, IAG and Macquarie have all offered VWAP discounts on SPPs over the past two years.
The GPT real estate investment group scales back retail unfairly
GPT Group deserved a brickbat from the Australian Shareholders’ Association for doing a $325 million institutional placement in January and then heavily scaling back the $124 million in applications for the subsequent $15,000 share purchase plan to just $50 million.
Many other companies such as ANZ, QBE Insurance, IAG, Super Retail Group, Bendigo Bank, Ardent Leisure, Automotive Holdings and Crane Group have expanded SPP caps in this situation.
Swiss play an inside game at Mantra Group
Swiss investment banking giant UBS is still trying to extract itself from its biggest Australian GFC disaster: backing failed Gold Coast property group MFS to the tune of about $800 million through the boom time purchase of the Stella hotel business.
UBS eventually converted the debt to equity and floated Mantra Group on the ASX last year, reportedly triggering profitable write-backs of previous book losses. Mantra last month bought the Outrigger business in Queensland for $29.5 million and conducted a $53 million institutional placement at $3.24.
The subsequent $3.24 share purchase plan only raised $3.61 million suggesting it was poorly marketed considering it was around 3-5% in the money during the offer period.
UBS also did not cover itself in glory when it dumped about $90 million worth of shares after the SPP offer had closed but before the shares were issued. This caused the share price to dip about 3%. UBS is represented on the Mantra board and really should have waited until after the SPP shares were allotted before trading down.