Introduction: Stephen Mayne is compiling the most comprehensive database of retail Share Purchase Plans (SPP), maintained on his website here. Firstlinks previously published Mayne's explanation of the inequity of many raisings, where large institutions were given the vast majority of the discounted allocation and retail investors were heavily scaled back. This week in The Eureka Report, he highlighted two stocks in the buy-now-pay-later sector.
Afterpay received $136 million in applications, which was below the $150 million cap, and the SPP outcome announcement included:
"The SPP was sent to 53,465 eligible shareholders and 10,110 valid applications were received, representing a participation rate of 19% based registered holdings. The average application was $13,300."
Retail subscribers to Afterpay's $66 SPP received full allocations, and with the stock currently above $70, it was a contrast to the previous heavy scale backs. However, Mayne called Sezzle's treatment of retail shareholders 'appalling' when it announced a $79.1 million placement at $5.30, but with a $7.2 million cap in the retail SPP. Applications worth $78.2 million were received, but they stuck with the cap and will refund $71 million or 92% of application monies. The shares closed last week at $7.42, giving the undisclosed recipients of the $79 million placement paper gains of $31.6 million or 40%.
In this summary, Mayne gives out his brickbats (criticisms) and bouquets (praise) for the ways SPPs have been managed.
Brickbats
To Mesoblast, Temple & Webster, Open Pay, Salt Lake Potash, De Grey Mining and Red 5 Mining for all conducting institutional placements exceeding $20 million during the COVID-19 pandemic without offering retail investors a chance to participate on the same terms through a Share Purchase Plan. Retail investors have collectively lost billions through capital raising dilution so far in 2020 and placements, especially at big discounts, without SPPs are the most egregious form of offering.
To Super Retail Group, Southern Cross Media, Australian Finance Group and Ooh!media which banned retail investors from applying for any 'additional shares' in their discounted non-renounceable entitlement offers, meaning that the in-the-money offers all finished under-subscribed delivering windfall gains for the institutional underwriters and further diluting retail investors.
To the following companies for refusing to lift the caps on their Share Purchase Plans despite each of them being heavily oversubscribed:
- Atlas Arteria: after a $420 million institutional placement, capped the SPP at $75 million and stuck rigidly to that cap even after receiving $180 million in applications.
- Breville: after a $94 million placement, stuck with its $10 million SPP cap despite receiving $54.7 million in applications.
- Capitol Health: after a $30 million placement, stuck rigidly to its $10 million cap, scaling everyone back to a maximum of around $16,300. Also failed to disclose total applications.
There was a larger cohort of companies which expanded their capped SPPs in the face of strong demand but still imposed heavy scale-backs. A couple deserving brickbats for very limited expansions include Megaport which expanded its SPP from $15 million to $22.5 million but still refunded 77% of all applications after $99 million came through the door. Similarly, Dicker Data only expanded its SPP from $5 million to $15 million after $53.7 million came through the door meaning that 72% of all applications were refunded.
Surely a base case for popular SPPs should be that at least half the applications are accepted.
Bouquets
To all the companies which improved disclosure to give investors greater insight into the participation rates for their Share Purchase Plans. Specifically, here are ten examples of healthy SPP participation rates above 20% which wouldn’t have been previously disclosed. Annoyingly, particularly for smaller holders, all of these offers (with the exception of Next DC) were scaled back based on size of shareholding:
- Ramsay Health Care: 52% (41,877 out of 80,273 applied for the SPP)
- Next DC: 51% (8,684 out of 17,015)
- Cochlear: 45% (16,651 out of 36,724)
- Breville:25% (3,104 out of 7,015)
- Lend Lease:7% (24,700 out of 60,688)
- Atlas Arteria:7% (9,300 out of 26,000)
- Iress:4% (2,800 out of 9,200)
- NAB: 25% (155,000 out of 615,000)
- United Malt: 25% (3,273 out of 13,092)
- Newcrest Mining: 23% (15,574 out of 54,107)
To all the companies which cranked up the regularity and detail of their ASX disclosures to keep investors fully informed about the impact of COVID-19. Payments company Tyro was a standout, effectively releasing monthly management accounts to the ASX showing how payments were travelling. Qantas was also commendable in terms of making regular and comprehensive disclosures to the market as events unfolded. Qantas CEO Alan Joyce also deserve credits for working for free during the June quarter.
Whilst renounceable pro-rata capital raising offers are preferred, these have been few and far between during the recent deluge of offers. This means the better structured non-renounceable pro-rata raisings are those that allow retail investors to apply for an unlimited number of additional shares to take up any shortfall left by fellow retail investors. In this regard, we give bouquets to the likes of Dacian Gold, Decmil, Reece, Kathmandu and Novonix for not limiting 'overs'.
To Ingenia, ARENA REIT, Charter Hall Retail, Charter Hall Social Infrastructure and National Storage for uncapping their SPPs after receiving total applications which exceeded the capped amount disclosed in the offer document. There have been far too many heavy scale-backs in 2020, so companies which end up doing an uncapped SPP should be congratulated, particularly if it means retail shareholders collectively increase their overall ownership of the company at the expense of the normally preferred institutional investors. Kudos also to Reece and Next DC for offering uncapped SPPs, which were always going to accept all applications from the outset.
Stephen Mayne is the Founder of Crikey, and also updates data and writes at The Mayne Report. This article first appeared in the ASA's Equity Magazine of July/August 2020.