Further to yesterday's rant about how confusing and unfair I thought the Share Purchase Plan (SPP) and top up offer for Sky City Entertainment [SKC.NZ] I can add a bit more meat to the bones after having spoken to my broker at ASB Securities, Bruce MacDonald, in charge of investor relations at Sky City and the hacks at Computershare, the company acting on behalf of Sky City for the small shareholder capital raising.
This broker had received many inquiries over this top up offer as to qualifications that made investors eligible to apply under that offer, specifically what "experienced investor" and "wealthy" meant in terms of eligibility.
From Securities Amendment Act 2004
“(2CC) For the purposes of subsection (2CB), a person is an eligible person if the person is 1 or more of the following:
“(a) wealthy (as defined in subsection (2CD)):
“(b) experienced in investing money (as defined in subsection (2CE)):
“(c) experienced in the industry or business to which the security relates (as defined in subsection (2CE)).
“(2CD) For the purposes of subsection (2CC)(a), a person is wealthy if an independent chartered accountant certifies, no more than 6 months before the offer is made, that the chartered accountant is satisfied on reasonable grounds that the person—
“(a) has net assets of at least $2,000,000; or
“(b) had an annual gross income of at least $200,000 for each of the last 2 financial years.
“(2CE) For the purposes of subsection (2CC)(b) and (c), a person is experienced in investing money or in the industry or business to which the security relates (as the case may be) if—
“(a) an independent financial service provider is satisfied on reasonable grounds that the person to whom the offer is made, as a result of having experience of that kind, is able to assess—
“(i) the merits of the offer; and
“(ii) the value of the security; and
“(iii) the risks involved in accepting the offer; and
“(iv) that person's own information needs; and
I found out when I rang my broker that I don't qualify as an "experienced investor" (even though I thought I was!) as alluded to in the top up offer documents. I would have to have "traded more frequently. and derived an income from those activities and/or have a larger portfolio than my current one.
It seems that these requirements are inserted to protect the "smaller less sophisticated investor", a category which I apparently don't meet either in terms of my Sky City holding and confirmed by both Computershare and Bruce Mac Donald.
Bruce MacDonbald (Sky City Entertainment Investor Relations)
Bruce reiterated much of the above, especially the looking after smaller shareholders part and that the company was restrained by securities law by being unable to offer shareholders like me a large enough parcel of shares as to fully protect from dilution of my shareholding.
This is in reference to the SPP where I can only apply for a maximum of $12500 worth of shares, already short of stopping dilution, and then I may not get the maximum because over subscriptions will mean a scaling down.
So if you own a smaller amount of shares your dilution effect will either be nil or infinitesimal.
Bruce pointed out that the applicable securities law, the Securities Amendment Act 2004 and as far as I can tell the Securities Act 1978 and subsequent amendments(of which there are many)means in effect that the issuer of the shares "must look after the largest number of smaller shareholders possible" and because people like me are somewhere in the middle we sit in some kind of financial black hole (my words) between the small shareholders and larger institutions who participated in the April $230 million placement.
When I pointed out that I was getting shafted Bruce told me SKC simply could have done an institutional placement and forgotten about everyone else but stressed again that "they wanted to be fair to the largest number of shareholders that they could". My counter to that would have been why didn't Sky simply have a rights issue if it had came into my head at the time.
In effect I am getting it from the front and the rear.
Computershare pointed out in their usual unfriendly and grudging manner most of the above and added that the way the Sky City offer was structured was the same as Fletcher Building in terms of definitions of eligible investors.
Although paying down sky City debt with he proceeds of the capital raising will lead to higher profits due to less interest paid, the amount I shares I receive under the SPP is unlikely to get me back to pre-capital raising dilution and I have no choice in that at all.
What is a positive though is that I have learnt something over the last few days and every little extra tool in the financial toolbox helps.
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Raising Capital for Dummies by Joseph W. Bartlett
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c Share Investor 2009