The Bank of Queensland (BoQ) capital raising fiasco for retail investors covered in Crikey last week has already had an impact on the market, with share registry giant Computershare yesterday unveiling an $835 million capital raising — which showed it had learned all of the key lessons.
First up, Computershare didn’t include any form of selective institutional placement in its capital raising, instead launching the 34th so-called PAITREO offer seen on the ASX — a pro-rata structure which treats all shareholders equally and is renounceable, meaning that non-participants are automatically compensated for their rights.
Just like with BoQ it was global investment banking giants Goldman Sachs and UBS teaming up on the Computershare deal, but this time they are giving retail investors 19 days to participate rather than the minimum 10 days.
However, Australia Post has become so unreliable that even 19 days might not be enough.
BoQ has around 110,000 shareholders and more than 30,000 are based in WA, courtesy of the bank’s 2007 takeover of the Perth-based Home Building Society. Crikey has received correspondence from one Perth-based BoQ shareholder who got the 118-page offer document on March 24, 14 days after it closed on March 10.
BoQ has privately informed the ASX that it has so far received 450 complaints from shareholders about receiving the offer document after the offer closed. But this only captures the shareholders who have gone to the trouble of complaining. The total number affected will be in the tens of thousands.
Neither ASX, ASIC or BoQ appears to be planning any corrective action to compensate these shareholders for their losses, leaving the only option as a class action.
I wrote to ASX chair Rick Holliday-Smith complaining about the BoQ offer and his compliance boss Kevin Lewis came back saying that ASX “sympathises with those BoQ shareholders in remoter areas who missed out on BoQ’s retail offer due to Australia Post’s less frequent delivery schedules”, but isn’t proposing any changes to the listing rules.
The two obvious changes would be to extend the minimum 10-day offer period and ban non-renounceable offers so that all non-participants are automatically compensated for their surrendered rights.
In the case of BoQ it was an estimated 70,000 retail shareholders who didn’t participate, leaving a $274 million shortfall on the $682 million retail offer, which was picked up by institutional underwriters who are around $50 million in front on their investment.
However, the true retail shortfall was actually slightly more than 40% because BoQ has conceded that $30 million of the $408 million shares accepted in the retail offer were actually from the earlier $323 million accelerated institutional entitlement offer.
As Crikey reported, BoQ told the ASX that 98% of available shares were taken up by eligible institutions, but this wasn’t strictly true.
Yes, around 2% of the institutional offer or $7 million in shares were explicitly rejected but around $30 million worth of institutional entitlements lapsed because the investment bankers weren’t able to make contact with the relevant institutions before the February 22 deadline.
Rather than being shafted without compensation like what happened to the 70,000 retail shareholders, the owners of these institutional entitlements were allowed to double-dip by coming in through the subsequent retail offer which opened on March 1.
Think about that for a moment. When tens of thousands of retail investors were sent an offer document that arrived after the offer had closed, which is surely the equivalent of not being contactable in time, neither the regulators or the company itself is proposing to do anything about it. Yet when UBS and Goldman Sachs can’t track down an institutional investor, they get to masquerade as a retail investor and are given an extra two weeks to participate.
I had a one-hour video call on Tuesday with BoQ chairman Patrick Allaway, where I let him know in very clear terms what a dreadful situation this was. Given the legal constraints preventing BoQ from reopening its now closed retail offer, I pitched him the idea that the bank should launch a compensatory discounted share purchase plan exclusively for retail investors.
Sure, BoQ doesn’t need to raise big licks of additional capital to fund its $1.35 billion purchase of ME Bank, but having diluted its retail shareholders down from owning 63% of the bank to just 57% without paying them any compensation, it is the least they could do.
Meanwhile, discussions continue with class action lawyers. It seems like a pretty open and shut case as this email from a bank shareholder explains:
I am an aggrieved BoQ shareholder with over 14,000 BoQ shares. My losses would be in order of $10-20k as a result of not being able to participate in the entitlement offer (received docs day after close).
I am interested in joining any class action or supporting you in any way I can, as it pertains to seeking investor advocacy through ASIC/ASX.
The issue is running pretty hot in Queensland after The Courier-Mail last week ran a page one pointer to this full length business column spelling out the farcical situation with Australia Post.
The AFR’s Rear Window column also gave it a solid burst, pointing out that even Merrill Lynch investment banker David Goffage, who invented the PAITREO offer, received his BoQ offer documents in Brisbane two days after the offer had closed.