NZSA Disclaimer
Over the last week, we have seen announcements of capital raise from both Auckland Airport (AIA) and – earlier today – Fletcher Building (FBU). Both have elements that are uncomfortable for retail investors who are unable (or unwilling) to participate. NZSA has long advocated – and prefers – a renounceable, pro-rata structure. We do consider extenuating circumstances – such as those facing the Synlait (SML) Board recently. Neither AIA nor FBU are facing quite the same level of concern as that facing Synlait.
In the case of AIA, while the allocation between institutional placement and retail share purchase plan broadly reflected the percentage demographic between institutions and ‘active retail participants’, NZSA holds some concern as to the level of discount offered to secure the institutional placement – as validated by the oversubscribed outcome. Also, in a world where institutional investors underpin 85% of the capital raise, exactly how much additional risk does the company (or its advisors) take on by offering an accelerated, renounceable rights offer (AREO) to non-institutional shareholders (with the placement ensuring pro-rata opportunity for institutional investors)? The answer would seem to be ‘very little’. NZSA can’t help wondering whether differentiated risk-based pricing associated with different structures was presented to the AIA Board.
In the case, of FBU, there is only one letter in the structure that offers concern: “N”. A non-renounceable offer structure is a bitter pill to swallow for retail investors who cannot (or will not) participate, especially given the significant level of dilution implied by the scale of the capital raise. It’s this impact that formed a key reason for NZSA opposing the introduction of accelerated non-renounceable entitlement offers (ANREO’s) to the NZX. Again, NZSA struggles to see the incremental cost of risk for the issuer.
Both raise questions about how investment advisors price risk into a capital raise structure. Both raise questions around the respect that said advisors have for retail investors. And DIY investors would be justified in their curiosity as to the nature of the relationship between the investment banking and wealth management arms of those advisors.
As always, we aim to be balanced and objective in what we say. NZSA does need to do some more homework around the FBU and AIA structures. It could simply be that all parties – investment advisors, company’s and institutions – are acting in their own interest; the ‘guiding hand’ of the market. That isn’t necessarily in the interests of shareholders.
Oliver Mander