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What happens when insiders under-write capital raisings


June 7, 2020

One of the sneakiest way for insiders or major shareholders to increase their control over a company is by under-writing a non-renouncable capital raising where retail investors are not allowed to apply for any of the shortfall shares. Here are a few examples of that dubious practice from over the years.

Australian Finance Group, 2020: $60 million raising comprising a $15 million placement at a 17.3% discount of $1.15 followed by a non-renounceable 1-for-5.5 at $1.15 with certain insiders partially under-writing the retail offer. Retail can't apply for overs which is a bad thing, particularly with insiders under-writing the guaranteed shortfall. The retail offer was only 78% subscribed with $10.1 million raised and an additional $2.96 million coming from the under-writers. With the shares at $1.70 when the retail outcome was announced, this ended up being heavily dilutive for retail investors when combining the impact of the placement, the size of the discount and the retail shortfall.

Bellamy's:
$60m raising with $45m from retail in June-July 2017. Was a 5-for-38 at $4.75 and the institutional component was only $14.3 million. Hedge fund on the board under-wrote but they allowed 25% of entitlement overs which got them to 98% take up. See conclusion announcement. Stock back to $8 by October so a very cheap offer and only a small component went to chairman's hedge fund. This announcement from Janchor suggests it picked up $4m worth of stock as under-writer on July 4.

Harvey Norman, 2014: Gerry Harvey made a quick $1m+ profit from his retail investors after personally under-writing a heavily discounted $120.7 million 1-for-22 non-renounceable offer at $2.50 in 2014. See outcome announcement explaining how he picked up 1.463 million cheap shares after a majority of retail investors declined to participate. See Crikey story.

Macquarie Atlas Roads: Macquarie Group is the largest shareholder with 14% and is represented on the board. It recently exclusively under-wrote a $450m 1-for.6.62 raising at $5.12. The stock traded at around $5.38 through the offer period. The retail offer


Virgin Australia, 2013: the 3 controlling shareholders Air New Zealand, Etihad and Singapore Airlines collectively picked up an additional $51.6 million in Virgin Australia shares courtesy of the shortfall on the $69 million non-renounceable retail offer at 38c where "overs" were limited to 40% of entitlement: See Crikey story.


Other to add: Charter Hall, MacMahon Holdings, Challenger Infrastructure Fund: :