Ben Williamson, CEO, Fresh Equities

Alan Deans, moderator, Listed@ASX: How did the onset of COVID impact on what you consider normal capital raising activities?

Ben Williamson, CEO, Fresh Equities: The market just dried up, from our capital raising point of view. The number of transactions halved. Then, we saw a lot of recaps come through and, finally, some growth raisings. One of the biggest things was that, instantly, every company was coming to raise which led to a really positive reaction. 

Pre-COVID, the share price of a company doing a raising would drop, typically, between announcement and settlement. What we saw was the exact opposite.

Georgina Lalor, Executive Director, Macquarie Group: Shareholders and the broader market were incredibly supportive of management teams proactively taking steps to reinforce their balance sheets. When we were at the height of the equity raising activity, we were at peak uncertainty in terms of the potential impact of COVID on businesses. 

Balance sheet strength was a determining factor in the market’s perception of a stock’s defensiveness. Back in the GFC, we didn’t see the pace of raisings accelerate so quickly. That was more straight forward because we were generally fixing a leverage problem. Here, we were reinforcing balance sheets with little visibility of where earnings were going.

David Friedlander, Head of Mergers and Acquisitions, KWM: We shouldn’t forget that equity capital markets for two to three years before COVID were not that strong. The amazing thing was all that was forgotten and capital markets for listed issuers pushed along strongly. Now, there’s a very strong IPO pipeline.

Clayton Larcombe, Chief Investment Officer, PAC Capital: I didn’t expect the rush we saw. When these raises came on, everyone was acting like they had excess cash on the sidelines – ammo and bullets to shoot. That’s why the raisings filled so quickly and why we continue to see good demand.

Simon Kidston, Executive Director, Genex ASX:GNX : We were sufficiently capitalised, but we had some projects in the pipeline we wanted to project finance. We thought then we would do it with equity, given it was available. We raised quite a large amount. $50 million for a company capped at $100 million - although we didn’t actually need tuse the emergency relief as half was under an agreement subject to shareholder approval and the other half was within our existing capacity. It filled very, very quickly because we had done a lot of work beforehand speaking to investors.

Listed@ASX: Were the emergency measures introduced by ASX needed?

Georgina: The way ASX moved together with ASIC was very effective to ensure companies were able to quickly access capital as businesses were forced to close. We really led the world. 

If you look at the volume of equity raised in Australia on a relative market capitalisation basis versus other exchanges globally, our market was very responsive.

David: The fact ASX and ASIC moved quickly was decisive. The momentum this gave at the beginning of the COVID-19 period was very important. The knowledge regulators were flexible about facilitating capital raisings was key. It gave retail shareholders an opportunity to participate. 

But the rules in Australia are a patchwork. They only allow certain structures to raise without a prospectus. Listed companies that are continuously disclosing should be able to raise without a prospectus in all circumstances.

Georgina Lalor, Executive Director, Macquarie Group

Simon: Most companies added a share purchase plan so smaller shareholders could participate on similar terms. We were very pleased to enable that. 

Ben: The changes restarted the market momentum and some should be considered to be made permanent. In particularly, disclosure to ASX on allocation. There’s potential to emulate the crowdfunding rules, where there’s a cap for non-sophisticated investors so they can participate on the day of a placement.

Georgina: ASIC and ASX responded decisively to the circumstances to assist companies to raise the capital they needed to survive. The regulators were very open to discussions about changes such as waivers that were needed in such difficult times. It was effective in creating that momentum and removed obstacles for companies needing to come to market. Those regulatory changes, along with the greater number of structures we have available, increased the options for listed corporates. 

That helped to balance numerous and often competing objectives in terms of speed to market, pricing, and ensuring fairness to all shareholders.

Listed@ASX: Were retail shareholders treated fairly throughout this period?

Georgina: Offer structuring is ultimately decided by individual company boards. Companies will make decisions on the appropriate offer structure based on competing objectives they are trying to balance. In my experience, it is always of concern to boards to ensure they give all shareholders access fairly. When you look across the vast majority of raisings over this period, retail shareholders were always given an opportunity to participate in some form, usually with the benefit of an extended period of time to consider the offer.

David: I think we looked after our retail shareholders very, very well in Australia. Some of the controversy surprised me because I think there are a number of strategic reasons why boards structure capital raisings in the way they do. Often, you can’t structure them perfectly because speed to market will be very important, and dilution has many facets. Then, there’s the cost of raising capital. The fairer you go, the deeper the discount. You can make that discount a lot thinner if you go swiftly to institutions, and then move out after that with, for example with a share purchase plan. From a retail shareholder’s perspective, that can be more value accretive than rolling out a rights issue. But these things have to be thought through in each capital raising. It depends on your register, on the volatility of the market, and on a whole number of factors. Boards always look at these things, but I wouldn’t want to tie them to have to go pro rata every single time.

Simon: This is something we thought about. The factors we sought to balance were the price and certainty of the money. The view our board took was a simple placement was the best way to meet those two objectives. We felt strongly we wanted to offer the same terms to our retail holders via the share purchase plan; a very simple, easy way to execute. It came at no cost, in fact no brokerage. It was not just fair, but also an easy and cheap way to raise money. We thought we would be swamped with demand, and set a cap to manage expectations. As it happened, we came in under that. Perhaps it is explained by the fact we raised our money in the latter part of this period. A lot of companies came before us, and I think appetite had been satisfied for some investors. They had used some of their ammo by that point. 

Clayton: My business fits into the small institutional side. I’m running $200 million in my fund, so it’s a small player. In the NAB raise, we had to find out how many people owned the stock, which was about 200 clients in my fund. Then we had to find out whether there were any shareholders above a certain size. It was well done, and transparent to anyone who checked it.

David: We have a very, very good environment for raising capital. We should, however, definitely consider law reform on the ability to be structure agnostic  and to raise with no prospectus for continuously disclosing listed entities. 

We would also really like some thought to be given to reducing the time period for rights issues by using electronic delivery. For example, in the UK you can do a rights issue in 10 business days. We think we could do that without law reform.

Clayton Larcombe, Chief Investment Officer, PAC Capital

In addition, we would really like the ability to identify shareholders in institutions or high net worth people using technological means so they can be involved in raisings more frequently. 

Ben: I think placements are the best way to raise money. The market signal they send and the business outcome is very strong. Then there is the fact that you are over and done, from an exposure point of view, in a day or two at most compared with a rights issue or share purchase plan. Look at your outcome, Simon. You raised $21 million in the placement, and that was done quickly because of the work that you put in. And you had confidence in that, which has a very positive impact for all shareholders. Whereas, a share purchase plan takes time and volatility feeds into it. Changes in volatility, whether from market events or from new retail punters, mean there’s a lot more volatility day-to-day. It’s better to get that raise over and done with and put the risk off.

Simon: The feedback we had from the professional investors was that, while they appreciated share purchase plans may be necessary, they’re very, very keen for them to be concluded as quickly as possible with a very narrow offer period. Ten days, some period like that, to minimise the impact on the share price.

Ben: It creates that overhang, right? Especially in smaller stocks, you immediately get retail investors who will sell their existing holdings. Essentially short themselves, and fill back up with the share purchase plan.