History was made on the ASX this morning when Downer EDI completed the first PAITREO capital raising where the institutional offer failed to clear and the retail offer is expected to show tiny take-up.

PAITREO stands for Pro-rata, Accelerated, Institutional, Tradeable, Renounceable, Entitlement Offer. After retail investors were diluted out of billions of dollars of value during the GFC courtesy of selective placements and non-renounceable offers, the PAITREO emerged as the fairest way to raise capital.

Alas, it won’t save companies from themselves if they announce something investors hate — in Downer’s case, a $2.12 billion hostile takeover bid for Spotless — and then ask unhappy investors to stump up $1 billion in new cash to pay for it.

With the new Downer shares being sold at $5.95 and the stock closing last night at $5.61, under-writer and takeover adviser UBS was left holding the bag. It disclosed a 12% interest on March 30, but then went back below 5% by April 6.

Downer disclosed this morning that the $254 million retail offer had bombed, so presumably we will see UBS re-emerge with more than 5% after the under-writing agreement on the retail offer settles on April 21.

PAITREO capital raisings — who wins? Retail or institutions (instos)?

The following list tracks the full history of the 22 PAITREOs we have seen since 2011. The most important point is whether non-participating institutional or retail shareholders receive the bigger compensation payment from the separate book builds. At the moment, institutions are leading with 10 wins, seven losses and five draws.

22. Downer EDI, March-April 2017: $1.01 billion two-for-five offer at $5.95. The $757 million insto offer was only 66% subscribed and the shortfall failed to clear, delivering no compensation to non-participants. The $254 million retail offer also finished with barely any subscriptions and non-participants received no compensation so this was a draw. And a debacle!

21. Boral, November-December 2016: $1.6 billion one-for-2.2 at $4.80, plus a $450 million placement at $4.80, which was a big discount on the $6.15 previous price. The $1 billion institutional component was 91% subscribed with the shortfall shares clearing at $5.25 as non-participants received 45 cents. The $484 million retail offer was only 50% subscribed with $242 million in acceptances. The 51 million share shortfall cleared at $5.15 returning 35 cents to non-participants so this was another win for instos.

20. JB Hi-Fi, September-October 2016: $394 million one-for-6.6 at $26.20. The $259 million institutional component was 94% subscribed with the 593,000 share shortfall clearing at $30.25 delivering $4.05 to non-participants. The $135 million retail component was 67% subscribed and the shortfall of 1.7 million entitlements cleared at $29.40, giving non-participants $3.20, so a win for the instos.

19. Vocus, June-July 2016: $453 million one-for-8.9 at $7.55 on top of a $202 million placement at $8.42. The $230 million institutional component was 97% subscribed with the shortfall clearing at $8.42 delivering 87 cents to non-participants. The $220 million retail component was 69% subscribed and the shortfall of 9 million entitlements cleared at $8.42, giving non-participants 95 cents each, so a win for retail.

18. Transurban, Nov-Dec 2015: $1.03 billion one-for-18 at $9.60. The $738 million institutional component was 90% subscribed with the 7.7 million shortfall clearing at $10.10, delivering 50 cents to non-participants. The $287 million retail offer had a 70% take-up rate and the shortfall of 9 million entitlements cleared at 30 cents, giving a win to the instos.

17. Santos, November 2015: $2.5 billion one-for-1.7 at $3.85, plus a $500 million placement at $6.80. The $1.17 billion institutional component was 86% subscribed with the 42.5 million shortfall shares clearing at $4.60 in what was a $196 million share sale as non-participants received 75 cents. The $1.35 billion retail offer closed 57% subscribed with $775 million taken up. The 152 million renounced retail shares cleared at $4.10, returning 35 cents to non-participants. Instos won with 50 cents more compensation.

16. Origin Energy, Oct-Nov 2015: $2.5 billion four-for-seven raising at $4. The $1.35 billion insto offer 92% subscribed with $108 million shortfall clearing at $5.20, returning $1.20 to non-participants. $1.2 billion retail offer 67% subscribed and 100 million shortfall shares fetched $5.35, returning a premium of $1.35. This hefty $535 million raising sold at a 5.1% discount given the stock closed at $5.64 the day before. Retail were the winner with 15 cents more compensation.

15. Treasury Wine Estates, Oct-Nov 2015: two-for-15 at $5.60 to raise $486 million An 89% take-up of $368 million institutional offer with $41 million shortfall clearing at $7.10. The $119 million retail offer was 57% subscribed and the 9.1 million shortfall shares cleared at $7.16, returning $1.16 to non-participants, so a win for retail who got an extra 6 cents.

14. Westpac, Oct-Nov 2015: $3.5 billion one-for-23 at $25.50. $1.6 billion insto offer was 95% subscribed with $80 million shortfall clearing at $30, returning $4.50 to non-participants. A $1.9 billion retail offer had 70% take-up as shortfall auction of 22.7 million entitlements on raised $670 million, returning $92 million or $4 per entitlement to non-participants. Instos got an extra 50 cents.

13. CBA, Aug-Sept 2015: $5.1 billion one-for-23 raising at $71.50. A $2.1 billion institutional component was 90% subscribed and shortfall cleared at $78, returning $6.50 to non-participants. A $3 billion retail offer 50% subscribed and raised $1.5 billion. Shortfall of $1.5 billion cleared at $73.50 returning $2 to non-participating retail investors, so a win for instos, which got an extra $4.50 in compo.

12. NAB, May-June 2015: $5.5 billion raising at $28.50. A $2.7 billion institutional component 97% subscribed and $100 million shortfall cleared at $33.80, returning $5.30 to non-participants. $2.8 billion retail offer 72% subscribed with $2.04 billion raised. Shortfall of 28.5 million shares cleared at $31.60, returning $3.10 to non-participating retail investors, so a win for the instos who got an extra $2.20 in compensation.

11. Tabcorp, Feb-March 2015: $236 million one-for-12 at $3.70. Insto offer 92% subscribed with 3.2 million share shortfall clearing at $4.51, returning 81 cents. Retail shortfall of 7.7 million shares cleared at $4.52, returning 82 cents to non-participants, so a win for retail by 1 cent.

10. Arrium, Aug-Sept 2014: $754 million raising including $656 million one-for-one raising at 48 cents. The $367 million insto entitlement offer was supported by 77% but shortfall cleared at offer price of 48 cents so no compo. The $290m retail component only attracted about $12 million in applications and shortfall failed to clear, going to the under-writers. Everyone a loser, especially under-writers and instos who participated, but no winner on shortfall sales.

9. AGL, Sept 2014: $1.23 billion one-for-five offer at $11. Insto component raised $516 million with 95% take-up, and 2.3 million shortfall shares cleared at $2.85; 56,000 retail shareholders took up $500 million or 70% of retail offer. The 19.7 million retail share shortfall cleared at $2.25 so a win for the instos by 60 cents.

8. ALS, July 2013: $246 million one-for-11 at $7.80. $112 million raised in insto component with 92% take-up as shortfall cleared at 95 cents. $134 million retail offer had healthy 78% participation rate and shortfall also cleared at 95 cents, so no winner.

7. ASX, June 2013: $553 million two-for-19 at $30. Insto component $267 million with 96% take-up as shortfall cleared at $3.70; $286 million retail offer had 75% take-up with $3.40 clearing price in book build, so a win for instos by 30 cents.

6. Brambles, June 2012: $450 million 1-for-20 at $6.05. Insto offer raised $333 million with 83% take-up rate. Shortfall of 9.2 million shares cleared at 45 cents. Retail offer raised 68 million with 61% take-up rate. The 7.8 million retail shortfall cleared at 25 cents. A win for instos by 20 cents.

5. AGL, May 2012: $904 million one-for-six at $11.60. The $356 million insto offer had a 95% take-up and 1.4 million shortfall cleared at $2.85. 60,000 retail shareholders applied for $404 million worth of shares in the $532 million retail offer with a 75% participation rate. The $128 million retail shortfall cleared at $2.90. A win for retail by 5 cents.

4. Bluescope Steel, Nov 2011: $600 million four-for-five at 40 cents. $338 million insto offer had 83% take up with 175 million share shortfall clearing at 40 cents offer price. The $260 million retail offer had a 48% take-up. The large shortfall cleared at 40 cents, so no winner.

3. Super Retail Group, Oct 2011: $334 million nine-for-19 at $5.34. For $282 million insto offer only 47% subscribed and 28 million shortfall failed to clear at offer price. $50 million retail offer had 46% take-up and retail shortfall of 4.3 million shares cleared at $5.38, a premium of 4 cents, so win for retail by 4 cents.

2. Goodman Fielder, Sep 2011: $259 million five-for-12 at 45 cents. $190 million insto offer 95% taken up and 30 million share shortfall cleared at 50 cents. $69 million retail offer was 60% taken up and 60.6 million retail shortfall cleared at 50 cents, so no winner.

1. Origin Energy, March 2011: trail-blazing $2.3 billion one-for-five at $13. $1.13 billion insto offer with 95% take-up as shortfall cleared at $2. $1.17 billion retail offer with 79% take-up as retail shortfall cleared at $2.80, so a win for retail by 80 cents.

Peter Fray

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