February 2, 2010
Dear Mayne Reporters,
Apologies you haven't heard from us since this lively edition on June 23, but my aunt and uncle celebrated their golden wedding anniversary at a big lunch in Cambridge on Saturday so we took our eldest daughter Laura on her first overseas holiday to meet the English half of the family.
One early highlight was arriving in Singapore and having Laura rushed to hospital in a speeding ambulance with police motorcyle escorts front and back all because her temperature was 38.6 and the authoritarian city-state has taken swine flu paranoia to a new level. The test came back negative but we were instructed to keep a perfectly healthy 8-year-old in home quarantine for 48 hours. Ridiculous!
Productivity Commission transcript and Peter Yates on pay
Check out the transcript from the 70-minute appearance on June 24 before the Productivity Commission inquiry into executive pay. It might make an interesting reference point for former PBL CEO Peter Yates, who got up at speech I gave to the Melbourne University Commerce department alumni annual dinner last night and suggested your correspondent was to blame for complaints about executive pay.
Truth be known, I've been arguing non-executive directors are underpaid for well over a year now and have been a strong supporter of the Macquarie Bank pay model over the years.
In an unusual twist, Yates also claimed his $20 million options package on being appointed PBL CEO partly came about because Kerry Packer wanted to see as big a bunfight as possible at the AGM. He then thanked me for the size of his payout. Where's the commission?
Asciano governance and Mark Rowsthorn
When Asciano revealed its record-breaking $2.3 billion selective placement in June, I let fly with this major attack through Fairfax Media's www.businessday.com.au websites.
The main problem was the rails run that CEO Mark Rowsthorn was getting to maintain his 10.7% stake. Well, fast forward a few weeks and Rowsthorn has walked away, completely surrendering his special deal to buy almost $200 million worth of shares in the placement at $1.10 a pop.
However, Rowsthorn has taken up his $78 million share in the 1-for-1 entitlement offer, but even that was funded jointly by a loan from UBS and the sale of 40 million shares at $1.25 through UBS, as you can see in this unprecedented personalised contract note that was lodged with the departing substantial shareholder notice.
The Australian's Bryan Frith has been rightly getting stuck into Asciano's highly dilutive capital raising tactics for weeks, but his colleague John Durie was disappointingly dismissive of the criticism whilst neatly summarising them in this column earlier in the week.
Meanwhile, Asciano revealed last night that it devised a scale back policy for its retail offer that deliberately penalised the smallest of its shareholders, led by yours truly who had applied for $57,000 worth of stock through two entitlements.
Most major issuers have settled on a minimum allocation for those applying for extra shares as follows:
Santos: $62,500
Billabong: $56,250
Onesteel: $36,000
Fairfax Media: $33,333
Wesfarmers: $13,500
However, a minority of issuers such as Alumina, DUET and Hastie have had no minimum but Asciano has now joined that group in restricting applicants for extra shares to 2.1 times their entitlement. Having massively diluted retail shareholders through its $2.3 billion institutional placement, the pressure was on the company to come through with its promised share purchase plan for retail investors.
The details of the SPP were released this afternoon - and what a sop it is. Retail investors will be restricted to $10,000 each (the recent norm has been $15,000) and they have collectively capped at $100 million.
Think about it for a moment. The big end of town gets $2.3 billion and retail punters just $100 million or 4.16% of the total amount being placed on a non-pro rata basis. That is even worse that QBE's appalling "6% for retail" effort as was explained in this feisty exchange at the recent AGM.
Such is the extraordinary contempt shown to retail investors by Asciano I've switched a long overdue appointment with the dermitologist next Wednesday to ensure it will be possible to attend what should be a very fiery EGM.
Updating capital raising plays
Tripping around the UK didn't stop plenty of online capital raising plays and we managed to post about $10,000 in gains whilst away, as you can see from this updated list. Most notably, here is the record so far in July:
July 1
Lincoln Minerals: bought 125,00 shares worth $10,000 at 8c in entitlement offer and sold 50,000 at 8.9c, 50,000 at 8.6c and 25,000 at 8.5c for a profit of $875.
July 6
White Energy Company: bought 2333 at $1.50 in share purchase plan and sold 2618 at $2.19 for a profit of $1609.
July 7
Automotive Holdings: bought 12,500 at $1.20 in share purchase plan and sold 12,500 at $1.44 for profit of $3000.
July 8
Ausenco: put $45,000 into three $15,000 SPPs at $3.20 but scaled back to $6000 and made profit of about $1200.
July 9
Cudeco: applied for $5000 SPP at $2.50 a share and sold for $2.48 to make tiny loss.
July 10
Graincorp: applied for $15,000 SPP at $6.25, scaled back to $7600 and exited at $6.90 to make a profit of $790.
Mirvac: applied for $10,000 through entitlement offer at $1 and sold for $1.10 to make a profit of $1000.
July 13
ANZ: bought 2074 ANZ at $14.40 through two $15,000 SPPs and sold 1037 at $15.80 and another 1037 at $16.10 so overall profit $3214.
Eastern Corp: spent $2100 in entitlement offer at 24c and sold for 27c to make profit of $262.50.
July profits so far: about $11,950
Clearly, it won't be possible to emulate the record $78,000 in gross profits from capital raising plays in June, especially now that the $14,000-plus gain from Asciano hasn't materialised. Here is a list of the oustanding applications where the allocation policy is still to be announced:
Atlas Iron: applied for $5000 SPP at $1.39 which closed on July 6 and trades on July 22. Midday price $1.76 so potential gain $1331.
Austen Engineering: applied for $5000 SPP at $1.45 which closed on July 17 and trades on July 30. Midday price $1.69 so potential gain $828.
Fantastic Holdings: applied for $5000 SPP at $2.30 which closed on July 13 and trades on July 22. Midday price $2.85 so potential gain $1210.
Karoon Gas: applied for $5000 SPP at $6.70 after placement which closes on July 17. Midday price $10 so potential gain $2462.
Macarthur Coal: applied for full $45,000 in 3 different entitlements to $15,000 SPP offers at $6 a share which closed on July 16 and trades on July 27. Midday price $7.32 so potential gain $9900.
Scale back practices all over the place
The Macarthur Coal offer is highly likely to be scaled back because it was one of numerous hare-brained companies which left the door open by announcing a capital raising and delaying the record date. Thousands of opportunists bought in and we'll probably see a repeat of the Adelaide Brighton, Crane Group, Ausenco and Graincorp situations where this resulted in everyone getting scaled back.
The Wayne Goss-chaired mining services company Ausenco got touched up for leaving the door open in this June 23 piece for the Fairfax websites and they responded by penalising all shareholders who owned less than 501 shares by only allocating them $2000 worth of shares in the $15,000 share purchase plan. Everyone else got the lot. I had three entitlements and only received $6000 worth of shares after applying for $45,000 worth.
Macarthur Coal is chaired by Keith de Lacy, former Treasurer in Queensland's Goss Labor Government, and they will probably pursue a similar scale back to Ausenco. The same goes for Macquarie Leisure, especially after its share register almost doubled from 7000 to about 14,000 courtesy of leaving the door open for three days and publicity such as this June 29 column for the Fairfax websites.
Surely it isn't too hard for companies to take a snap shot of the register on the day a capital raising is announced. There have been thousands of opportunists profiting by buying in - but only when the scale back policy hasn't been punitive. Graincorp threatened to get very tough Ausenco-style but then allocated anyone who applied for the full $15,000 share purchase plan offer $7600 worth of shares. In my case, these were sold on the first day for a profit of $790.
Westpac's Hastings division shafts their smallest investors
Australian Infrastructure Fund, managed by the Westpac-controlled Hastings group, introduced a new scale back philosophy with its retail offer when applicants were restricted to the lower of 500,000 new units or 5 times their entitlement. At first I thought this meant our $20,000 application had been accepted, but now it's clear my status as the owner of 15 shares will mean all but $50-odd dollars will be refunded.
Amazingly, this policy has resulted in an overall shortfall of 18 million shares worth $19.8 million which will be allocated to the sub-underwriting clients of Deutsche Bank and Credit Suisse. AIX gloated that 88% of applicants had been fully satisfied when it could easily have got above 95% with a minimum allocation of, say, $15,000, making it like a regular share purchase plan.
It truly is bizarre that a listed company could accept the conflicted advice of its foreign bank underwriters who will make even more money from the 19% shortfall with the net effect being that retail investors as a class have once again been diluted as the expense of institutions.
As we've argued time and again, the fairest way to raise capital is through renounceable rights issues like that completed by Rio Tinto. Indeed, Brisbane-based property group FKP has also gone down this path and retail investors who declined to take up their entitlements will be compensated through an institutional book build, rather than having their shares given away for free to either other retail investors or under-writers.
Public companies: lodge your bids for new AGM scheduling system
Today we're launching the first Australian attempt to centrally schedule AGMs during the peak season in October and November to minimise the number of clashes.
Retail shareholders have been calling for this after numerous major clashes over the years, so the idea is for three slots - morning, afternoon and evening - to be available for ASX300 members to bid for.
Click here to see what is a rather bare diary and could company secretaries who already know their times please email the details straight through to stephen@maynereport.com so we can quickly get an idea of what is planned for when.
Everyone ASIC has ever jailed - the 2009 crop of small fish
Is ASIC an effective corporate cop? You be the judge as this is the list of 344 people they have sent to jail since it was established in January 1991. So far in 2009 they have jailed 14 corporate crooks as follows:
22 January 2009 - Mrs Patricia Jenkins of Shailer Park, Brisbane, was sentenced in the Brisbane District Court to two and a half years imprisonment after pleading guilty to three charges laid by ASIC. She will serve a minimum of eight months before being eligible for parole. Mrs Jenkins pleaded guilty to three counts of dishonestly gaining a financial advantage of $132,000 for Jenkins Increase Pty Ltd between 16 June and 9 August 2005.
16 February 2009 - Mr Rocco Musumeci, 28, of Rockdale, New South Wales, was sentenced to seven months imprisonment, fully suspended. On 18 December 2008, Mr Musumeci a former client advisor with Bell Potter in Wollongong New South Wales, pleaded guilty to three counts of market manipulation.
16 February 2009 - Mr Richard Wade, 43, of East Melbourne, Victoria was sentenced to 15 months imprisonment, fully suspended. On 10 November 2008, Mr Wade a former client advisor with ABN Amro in Melbourne pleaded guilty to seven counts of market manipulation.
27 February 2009 - Mr Trevor Cohen of Balmoral, New South Wales, was sentenced to a community service order totalling 300 hours in the Sydney District Court after being found guilty on 12 February 2009 on four counts of falsifying company books. The Commonwealth Director of Public Prosecutions withdrew a summary charge against Mr Trevor Douglas Cohen on March 17, 2009.
3 April 2009 - former accountant and company secretary for the Bustan Group, Ms Claire Horsman, was sentenced to two years and six months imprisonment after pleading guilty to three criminal charges brought by ASIC. ASIC alleged Ms Horsman was responsible for falsely representing Bustan's financial position in monthly reports provided to its bankers to ensure the continuation of its financial facility. Ms Horsman will serve a minimum of eight months imprisonment with 19 months of the sentence suspended.
8 April 2009 - Mr Karl Veljkovic, of Beaconsfield, Victoria, was sentenced to a total of two and half years imprisonment for dishonestly concealing or withholding material facts when inducing people to redeem their superannuation funds and roll them into a self-managed super fund. The Court ordered that six months of the total sentence be served concurrently. He was immediately released on a recognisance of $10,000 to be of good behaviour for three years.
21 April 2009 - Mr Stephen Matthews of West Pymble, Sydney, was sentenced to six months imprisonment for contempt of court. On 25 February 2009, Mr Matthews was found guilty by Justice Barrett of contempt of court for breach of orders of that Court on 4 October 2000 in proceedings brought by ASIC. The orders permanently prevented him from undertaking the business of advising about securities and of dealing in securities except as permitted by the Corporations Act.
27 April 2009 - Former Queensland Gas executive and company secretary, Mr Mukesh Panchal, was today sentenced to two years jail with a minimum custodial period of 14 months for insider trading. Mr Panchal bought the shares while in possession of inside information about an $870 million alliance with British-based BG Group Plc.
8 May 2009 - Mr Richard Harris of Burpengary, Brisbane, has been sentenced in the Brisbane District Court to 18 months imprisonment after pleading guilty to one charge of operating an unregistered managed investment scheme involving approximately 200 people. Mr Harris was released upon entering a $2,000 recognisance to be of good behaviour for 18 months.
19 May 2009 - Former property developer, Mr Keith McCoy, was sentenced in the Brisbane District Court to three years imprisonment in relation to forgery charges brought by ASIC. He will serve 15 months with a fixed parole date of 18 August 2010. Mr McCoy, of Mount Tambourine, Queensland, was found guilty by a jury of five counts of forging cheques.
22 May 2009 - the former director of EBS Consulting Pty Ltd and EBS Holdings Pty Ltd, Mr Timothy McKenzie, of Boronia, Victoria, was sentenced to four years imprisonment after pleading guilty to three charges of obtaining a financial advantage by deception and two charges of theft. He will serve a minimum non-parole period of 18 months imprisonment.
28 May 2009 - Mr Kelvin Skeers of Queanbeyan, New South Wales, a former mortgage broker with Tonadale, was given a good behaviour bond for two years upon entering into a recognisance of $5,000 after pleading guilty to charges of knowingly using false accountants' letters with the intention of inducing a lender to approve low-documentation loans for seven borrowers. He was also ordered by the ACT Supreme Court to perform 240 hours of community service over the next 12 months.
29 May 2009 - Mr Anthony Ryan, of Doncaster, Victoria, was sentenced to three and a half years imprisonment fully suspended on the condition he enter into a recognisance to be of good behaviour for that period after pleading guilty to three charges of dishonesty bought by ASIC. Mr Ryan was also fined $10,000.
10 June 2009 - the former sole director of Asset Finance Service Pty Ltd Mr Adrian Camilleri was sentenced to 21 months imprisonment with a non-parole period of nine months after being found guilty of one count of fraud. This followed an investigation by ASIC into Mr Camilleri's conduct between December 2005 and September 2006.
The big problem with all these names, is that none of them represent big fish. Indeed, the only one of any note was the former Queensland Gas company secretary Mukash Panchal who committed an outrageous act of insider trading.
Finally, here is the list of ASIC's jail rate since it was created in 1991 and go here for all the names:
1991: 6
1992: 8
1993: 13
1994: 10
1995: 24
1996: 16
1997: 22
1998: 22
1999: 21
2000: 31
2001: 18
2002: 22
2003: 15
2004: 28
2005: 17
2006: 17
2007: 16
2008: 24
2009: 14 so far
Votes against when I have run for the board
We all know that incumbent directors of ASX listed companies get an average 96% of the vote in favour, but there is firm evidence that shareholders can indeed vote against.
The following table is of the against votes when I've run for boards of companies which are still listed. The average against vote has been about 85% and who else can claim to have had $233.78 billion worth of stock voted against them, based on share prices earlier this afternoon.
| ASX Code AMP AMP ASX ASX ASX ASX AWC AXA BHP CBA CER DJS FXJ FXJ GNS IAG IAG MQG NAB NWS OZL PMP SPT TLS TLS TLS WAN WAN WAN WDC WOW WOW |
Against Votes 102,961 318,361 16,196 19,717 32,086 57,574 683,934 1,200,000 2,588,562 136,107 1,258,280 63,589 275,333 562,583 165,805 276,373 239,880 115,496 309,916 1,100,347 1,282,119 108,852 98,129 6,917,432 7,834,043 8,324,717 43,809 42,255 85,625 271,933 101,273 348,238 |
Value (000's) $512,746 $1,585,438 $565,240 $688,123 $1,119,801 $2,009,333 $1,025,901 $4,668,000 $91,013,840 $5,389,837 $125,828 $296,961 $340,036 $694,790 $166,634 $978,360 $849,175 $4,490,484 $7,376,001 $14,887,695 $1,230,834 $46,806 $215,884 $23,173,397 $26,244,044 $27,887,802 $207,655 $200,289 $405,863 $3,105,475 $2,767,791 $9,517,345 |
| Total |
$233,787,408 |
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