Wednesday, April 22, 2009

More Moola Please!

Back on the agenda for this week is the capital raising that is sweeping NZX listed companies.

Apart from the fact that they have been carried out without the permission of shareholders and the NZX has granted them waivers to allow management to do so, there seems to be a pattern forming.

The latest capital raising to be announced was Sky City Entertainment [SKC.NZ] who came out today with an underwritten offering of 71 million shares to institutions and a further NZ$50 million or around 20 million shares in an offer to smaller shareholders like me.

The company really doesn't need the extra funding because its current debt servicing doesn't have to be re-negotiated for a number of years.

This is much like the deal offered from Fletcher Building [FBU.NZ] and Freightways Ltd [FRE.NZ] for extra capital over the last couple of weeks.

Just doing very rough figures in my head the dilutionary effect for shareholders for these 3 companies is around 15%.

What that means to me is the followng to avoid dilution of my shareholdings:

1. Fletcher Building - additional 150 shares

2. Freightways Ltd - additional 1230 shares

3. Sky City Entertainment - additional 5250 shares

What I have decided to do is the following:

1. Fletcher Building - additional 500 shares @ 5.35 per share approx

2. Freightways Ltd - additional 1800 shares @ 2.44 per share approx

3. Sky City Entertainment - maximum of 6000 shares @ 2.52 per share approx


An additional $NZ 22,000 approx that I must find. Not a problem for me and I don't have a big issue with stumping up the cash because as part owner of these businesses sometimes you extract money from them and sometimes you have to put it back in.

As I mentioned above what I do have a big issue with is the lack of consultation with shareholders like me and the NZX's collusion with company management to allow them to bypass owners rights and give institutions preferences that smaller shareholders dont get. I would have said yes to company requests (sans the institutional favouritism) for more capital but I nevertheless should be asked in the first place.

I own part of these companies after all !

It has sent me into a kind of Bruce Sheppard mode on speed but there is very little I can do except make it known here that I am an unhappy camper.

As I said back in early January capital raising is set to become popular this year and it has by no means finished yet.

Nuplex Group [NPX.NZ], Fisher & Paykel Appliances [FPA.NZ], Kiwi Income Property Trust [KIP.NZ] and a whole host of other companies have already had out the begging bowl and I fully expect to have to fork out more myself although the bulk of my extra capital allocations have already revealed themselves.

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Raising Capital: Get the Money You Need to Grow Your Business
Raising Capital: Get the Money You Need to Grow Your Business by Andrew J. Sherman
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