I have been moaning, bitching and hitting my head against a brick wall recently because of how totally unconscionable a number of NZX listed companies have been towards their shareholders when it comes to the flurry of capital raisings that have happened over the last few months.
Scant little care and only lip service has been given to small shareholders like you and me.
The three capital raisings that I have participated in so far : Sky City Entertainment [SKC.NZX] , Fletcher Building Ltd [FBU.NZX] and Freightways Ltd [FRE.NZX] have all favoured the larger shareholders or in fact recent interlopers who haven't been shareholders at all. They received concrete shareholdings at a definite price, without having to stump up "lost cash" that stays in someone else's bank account until credited back to the recipient with their meagre allotment of shares.
Small shareholders have had to stump up the maximum amount of cash to get a scaled down number of shares at a price they are unsure of until after the offer is closed.
The latest stinker has been the Freightway's share offer that wanted NZ$5,000,000.00 from small shareholders but was over subscribed by 1040%!
As Kelvin Hartnall points out institutions got a great deal:
The total amount provided by small investors was $57 million, which is more than the total capital raising combined. This shows that it was completely unnecessary to dilute the share-holdings by giving institutions such a great deal. Essentially the institutional investors have received a great bargain at the expense of small investors.
I sent in the maximum $12500 and will get less than 500 shares. I needed around 1200 to avoid dilution. Here, from Kelvin Hartnall again is an approximate breakdown of what Freightway's shareholders can expect to get some time next week:
| Aggregate pool | $5,000,000 |
| Number of share-holders | 6,423 |
| Pool available per share-holder | $778.45 |
| Issue price | $2.44 |
| Shares available per share-holder | 319 |
This favouritism to the big boys is more of the same we small guys have expected and we have little protection from securities law, the NZX or any independent body. Bruce Sheppard from the Share Holders Association has been vocal as usual but has been met with the typical stoney silence or bullshit from company management along the lines of "well that is the best we can do in this economic environment".
Clearly that is wrong. Share offers for every good company that has made one so far have been wildly over-subscribed, so the moola is out there.
Other companies have at least made an attempt to even the financial playing field in their capital raisings by using rights issues to raise money. As rights issues are structured, a non -renouncable rights issue is one where shareholders are given the right to purchase new shares according to the number of shares they hold or they can forgo those rights if they wish. On the other hand a renouncable rights issue would allow shareholders to trade those rights to others should they not want to take up the rights offer.
In my opinion a renouncable share offer is the fairest way of raising capital because you get to buy in proportion to the shareholding you have and if new shareholders wish to participate in the capital raising they can buy the rights off you.
After that if there is a capital shortfall then and only then should institutions get a crack at stumping up some cash and the incentive to offer them a better deal, at the back end, would not only be appropriate but more than warranted.
Related Share Investor Reading
- Sweetheart deal for Fletcher Building's friends makes small investors sick
- What 11 years of Stockmarket investing has taught me
- The NZX continues to lose ground with retail investors
- Sky City CEO doubles down
- More Moola Please!
- Are you experienced?
- Sky City share offer confusing and unfair for small shareholders
Relevant Links
Kelvin Hartnall's Blog
NZ Shareholders Association
NZX
Freightways @ Share Investor
Share Investor's Total Returns: Freightways Ltd
Share Price Alert: Freightways Ltd 3
Share Price Alert: Freightways Ltd 2
Freightways Ltd: 2011 Half Year Profit Commentary
Share Price Alert: Freightways Ltd
Freightways Ltd: 2010 Full Year Profit Analysis
Long Term View: Freightways Ltd
Freightways Ltd: 2010 Half Year profit commentary
Freightways Ltd: 2009 Full Year profit commentary
Freightway's Capital Raising more of the same crap for small shareholders
Long VS Short: Freightways Ltd
Freightway's keeps delivering
Why did you but that stock: Freightways Ltd
Freightway's delivers
Freightway's packages up a good result
Discuss FRE @ Share Investor Forum
Download FRE company Reports
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c Share Investor 2009
Excellent post! I completely agree with your focus on fair capital raising by ensuring equality amoung share-holders. I really don't understand why Freightways didn't use a renouncable rights issue since they are not a company in trouble and there was obviously a significant amount of investor support for them. Also, with their current high debt to equity ratio and their desire to continue to grow via acquisitions, I don't understand why they wouldn't allot a greater maximum amount for the SPP; it is not as if they couldn't do with additional equity on their balance sheet. Let me know if you hear of any further explanation from the Freightways management.
ReplyDeleteWell, Kelvin the piece was partly inspired by you.
ReplyDeleteIn reference to your point about the max amount for the SPP. I think the company is ltd by Securities Commission laws - a 1978 one I believe. I think the answer to fairness then lies in law rather than idiot management.
Having said that the rights issue would have been the way to go.