Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn


Getting a better deal on IPOs

Christine St Anne  |  28 Nov 2013Text size  Decrease  Increase  |  
Email to Friend

Christine St Anne is Morningstar's online editor.


There is a strong pipeline of initial public offerings (IPOs) for the Australian share market. Twenty-nine IPOs have already been announced for December with more slated for the new year.

In the old days, only a select group of investors would have access to these IPOs. Investors who were able to buy into these IPOs were normally clients of the brokers managing the capital raisings of these companies.

In many cases, capital raisings tended to favour institutional investors as many retail investors were considered too "small time" to receive a call from a broker, who preferred raising money from the big end of town.

Capital raisings often favoured institutional investors when a company needed to raise a large amount of money.

This is commonly known as the "institutional placement" side of capital raisings, whereby fund managers and other large shareholders could raise money very quickly.

Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass

This selective approach to capital raisings often irked associations that represented retail investors, such as the Australian Shareholders Association.

A recently launched service by the Australian Securities Exchange (ASX) and On-Market BookBuilds aims to widen access to IPOs by making deals available to high net worth investors.

The ASX BookBuild service does not just include IPOs, it also includes placements.   

To be eligible to participate in an undocumented capital raising, such as a placement, the law states that investors need to be deemed 'sophisticated', that is, investors need to have net assets of $2.5 million or gross earnings of $250,000 for each of the past two years. All investors, however, can participate in IPOs.

ASX BookBuild offers a service that is distinct from the current process of capital raisings and IPOs. As opposed to the existing off-market process for conducting bookbuilds, deals in the ASX BookBuild service are conducted on market and will operate throughout the ASX's trading day.

This means investors will be able to see a live price. It also allows investors to know the price they need to bid in order to receive an allocation.

Investors will  only be able to participate in the transactions through using their broker. While the transaction is open in the ASX BookBuild, a broker can transact bids on behalf of their clients - similar to buying shares on the secondary market on the ASX.

Any service that gives retail investors the same access to investment opportunities as institutions is a good thing and will make the market fairer, Morningstar sector head of consumer and industrials Peter Rae says.

© 2022 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend