Getting a better deal on capital raisings

Christine St Anne | 09/01/2013

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Christine St Anne: Our Head of Equities, Peter Warnes recently made some comments about retail investors getting unfair access to deals like IPOs. A new service from the ASX aims to change that.  Today, I'm joined by Ben Bucknell to tell us a little bit more about the ASX On-Market BookBuilds. Ben, Happy New Year.

Ben Bucknell: Thanks. I can't believe it's 2014 already.

St Anne: Ben, can you tell us a little bit about the AXS On-Market BookBuilds and how it works?

Bucknell: Absolutely. Well, it really came out of the 2008-2009 years where there was a lot of deeply discounted offerings, where normal ordinary shareholders and companies were being dilutive. Companies clearly needed access to capital quickly, so they used the traditional placement method.
The problem with that method was that it didn't tap into every eligible investor in the market. So I took an idea to the ASX which said, why don’t we take the traditional process, all the controls that you have around allocations and around pricing, but put it on the market.

So that every investor has the opportunity to bid for shares if they see value in them and also for companies, meaning that a company can access not just a really small pool of investors, but the entire market of investors. So ASX BookBuild is really a combination of the secondary market as we see it today and the traditional process of raising capital.

St Anne: So how can investors get access of some of these deals, such as IPOs?

Bucknell: Well, it's very simple. All they need to do is fill out a once-off application form with their broker. Once they have done that, it's just like buying shares in the secondary market. So you see a code, let's say, it was BHP doing a – as we were talking about before – doing a BookBuild to rise capital, that's a BHPXPB and they just bid in. But in order to bid in, they have got to fill out that once-off agreement with their broker.

St Anne: Ben, the traditional way for companies to raise capital was to go through their broker. So do you expect more companies to participate in this service?

Bucknell: Well, one point of clarification there. This always does involve a broker. So you still have a broker doing their traditional process of getting together demand from your institutional investors or from your existing shareholders. They bring that demand into the book and then they do the ASX BookBuild after they are comfortable with what their already offer is.

So for companies, it's a no-loss proposition. Basically, they can get access to the entire market of potential shareholders, potential investors, and they do that after they are already securing the knowledge that the capital is going to be raised. They can either do it simultaneously or they can do it consecutively. So for companies, it's a very simple proposition. Do you want to be able to access 30, 40, 50, 100 investors or do you want access to the entire market of investors?
I think what's really interesting and particularly with your clients, you've got 207,000 high net worth clients in Australia with investible assets of more than million dollars. You've got a $155 billion sitting in self-managed super in cash and short-term deposits alone. That's only a third of self-managed super pool by the way. So all that capital can come to bear and – on the market and be used for companies to grow, and at the moment the current prices doesn't let companies tap into those markets.

Of course, on top of that there is all the small institutional managers. So if they get a phone call at the moment, they might be saying, 'Oh, I don't necessarily get a phone call on the good ones, so am I going to take up in this one.' But under ASX BookBuild, every single investor gets to participate and gets to bid and be allocated in the process which is fair. It's transparent because everyone can see a live price and you know, just like you do in the secondary market, that if you bid at or above that price, you'll be dealt with securities in the same way that every other on-market bidder will be dealt.

St Anne: Finally, Ben, being a relatively new service, how has the market responded?

Bucknell: I think it's been fantastic. We launched on the 8th of October, only five days later we had our first transaction, WAM Capital. That was 70% oversubscribed and they upsized the offering from $15 million to $25 million. The next offering LNG, a resources company, that went out, raised $10 million using the facility and now there is lot of IPO where the front end of the process got the demand from ASX BookBuild and that's still open for investors to be able to bid into. That's a call company up in Queensland.

So I think from the companies perspective, there has been an extraordinarily strong response. We've seen around 200 listed companies, most of those are in the ASX 300. The response from them has been unanimously positive. We've seen a number of brokers who are now out in the market pitching this and saying this is a wider wining business. And of course, we've had a ton of brokers and their clients sign-up so that when a BookBuild comes along, they can bid in and be treated in the same way that a big institution might be.

So if you're a small investor out there and you haven't yet signed up for ASX BookBuild, then contact your broker, get that once-off application form and if you're eligible under the law to bid. And by that I mean, if it's a fully documented offer like an IPO, you can just bid in no matter who your broker is, if they are using ASX BookBuild.

If it's an undocumented offer, which is just of course available to sophisticated investors, and you make that category, well, you can bid into that as well and you just see the code just like you do in secondary market trading. So it's really simple. The key is just signing that once-off agreement with your broker and every broker in the market is entitled to bid into ASX BookBuild facility in the same way that they bid for shares in the ordinary trading of secondary market.

St Anne: Ben, thanks so much for your insights.

Bucknell: My pleasure. Thank you.

This report appeared on www.morningstar.com.au 2022 Morningstar Australasia Pty Limited

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