ASIC, Australia’s sleepy corporate regulator, is doing little to prevent thousands of retail shareholders from getting suckered into poorly structured fundraisers compiled by global investment banks and investment boards. complicit administration. Instead, it focuses on harassing and shutting down “finfluencers” to shut them down.
The situation of the “finfluencer” is well explained in this australian firebug farewell blogpost, but it basically comes down to ASIC threatening to throw the book at bloggers discussing financial products without first obtaining an ASIC financial services license, which can cost up to $15,000 a year including insurance.
At a time when financial advice is becoming increasingly expensive to obtain, this over-the-top ASIC attack on free speech narrows the sources of information available to retail investors hoping to better understand the investing landscape.
Meanwhile, the biggest scam in the Australian market remains the unfair structuring of capital raisings – and ASIC appears to be doing nothing to curb practices in this area.
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For example, ASX-listed online marketplaces giant Carsales is currently embarking on a $1.207 billion 1-for-4.16 non-refundable rights offering to fund the $1.17 billion acquisition of the remaining 51% stake he does not already own in the US company. Interactive traders.
When it purchased Traders Interactive’s first 49% stake for $797 million in 2021, Carsales raised $600 million in new capital to its credit through a so-called PAITREO, which stands for pro rata, expedited, negotiable, waiver of right offer.
There have been 39 PAITREOs since 2011. This is the fairest way to raise funds because while institutions must commit within 48 hours, retail investors generally have three weeks to either accept the offer or sell their rights on the ASX, or receive compensation. after a company-sponsored auction of the entire retail shortfall at the end of the bid.
Not only did Carsales abandon the PAITREO structure for its current raise, but it also failed to provide the ability for retail shareholders to apply for additional deficit shares.
In the avalanche of capital raising that followed the global financial crisis of 2007-2008, it was common practice to offer retail investors unlimited “overs” in a pro rata offering.
Groups like Goodman Group, Fairfax, Billabong, Stockland, Suncorp, Bluescope Steel, Wesfarmers, Dexus, Santos, Mirvac and Amcor have all done it.
However, it benefited savvy retail shareholders who demanded additional shares in-the-money and disadvantaged unsophisticated, disorganized, ill-advised and less affluent investors who did nothing and diluted themselves without compensation.
But at least the shortfall advantage remained with the retail category as a whole, rather than being scooped up by Wall Street’s big-end underwriters and their institutional clients.
These days, unlike Carsales, most companies that offer a pro rata offer with no waiver (see full list) limit “overs” to as little as 15% of the fee, but at least retail participants can have a access to retail shortfall. .
The biggest victim of Australia’s all-out capital-raising system is the retail investor who does nothing when offered the opportunity to invest in a new equity issue. The PAITREO was invented in 2011 to remedy this problem.
Carsales’ latest fundraising of $1.2 billion is underwritten by Wall Street giants Goldman Sachs and JP Morgan, who receive a savory 2% commission for the privilege. That’s a whopping $24 million in shareholder funds coming directly out of the company, on top of the $12 million these same two companies pocketed by underwriting PAITREO’s $600 million last year.
Carsales’ board clearly does not have a majority of directors concerned with the fair treatment of its 20,000 retail shareholders. The last increase was priced at $17.75, a steep discount of 14.5% from the previous close, and the stock closed at $19.65 yesterday, meaning it is 10, 7% in the money ahead of the July 13 close of the $363 million retail supply.
In other words, 20,000 retail investors must contribute $363 million or an average of $18,150 each in order to fully capture the proposed $39 million collective paper profit, because these 20.45 million new Carsales shares at reduced price are currently valued by the market at $402 million.
However, history shows that a majority of retail investors do not participate in capital-raising deals, even when they are well in the money. They are not sophisticated enough to act in their own interest. And because retail investors have been barred from applying for additional shares, that means a good chunk of that $39 million paper profit will be picked up by Wall Street underwriters and their sub-underwriter clients.
ASIC knows it, the directors of Carsales know it and the underwriters on Wall Street know it. So why does ASIC not forget to harass “finfluencers” and instead demand that any shortfall in a pro-rated rights offering be auctioned through a competitive bookbuild to compensate non-participants for their lost property rights?
Even some of the big shareholders were diluted without compensation as Carsales’ $842 million institutional fast-track offering was only 90% subscribed. Despite written requests, no information has been provided on what happened to that $84 million institutional shortfall, which is now $9 million. Was it given priority to existing institutional shareholders, taken over by sub-guarantors, or offered to teammates on the board of directors and Wall Street underwriters? And who specifically participated in the development of the allocation policy and its proper application?
Presumably, we’ll get the same opacity from Carsales when the outcome of the rushed $363 million retail bid hits the market next Friday, but don’t be surprised if more than $100 million is missing. The bigger the shortfall, the more Goldman Sachs, JP Morgan and their underwriting clients benefit, so they have no incentive to effectively market the offering to maximize participation.
The turnout could have been higher if there had been more “finfluencers” urging everyone on TikTok to check whether their grandparents were acting rationally in accepting the poorly structured and overly reduced Carsales offer.
Saldy, this deal was deliberately designed to dilute thousands of nonparticipating retail shareholders without offering any compensation for the transfer of tens of millions of value to the big city. Expect some fireworks at the October 28 Carsales AGM in Melbourne, but don’t expect to hear a peep from ASIC.
This article was first published by Crikey.