The Australian Council of Superannuation Investors has called on the board of the country’s 300 biggest companies to ensure that they protect the holdings of existing shareholders when looking to raise capital through the pandemic.
ACSI, whose asset-owner members oversee around $2.2 trillion in assets, has sent a letter to the boards of every ASX 300 company, highlighting what it said are the “minimum expectations” when a company executes a rights issue during the crisis.
The Australian Stock Exchange’s new rules, under the Temporary Emergency Capital Raising grant, effectively gives companies that are impacted from the coronavirus extra freedom to raise capital in the period to 31 July 2020. It also allows them under certain provisions to issue 25 per cent of new shares, up from 15 per cent previously.
“Just because companies can place up to the new 25 per cent limit doesn’t mean they should,” said ACSI CEO Louise Davidson in a statement. “Companies need to raise capital in a way that serves the interests of their shareholders not the transaction industry.”
QBE earlier this week became the latest company to raise capital to help shore up the balance sheet after warning of an extended global recession. Australia’s second-largest insurer is planning to raise $1.3 billion, the majority of which will come from a $1.2 billion institutional placement underwritten by JPMorgan and Goldman Sachs.
ACSI said its preferred approach to raising capital was for companies to use PAITREO, or pro-rata accelerated institutional offer with accompanying retail entitlement offer, which it conceded would be challenging in current market conditions.
It asked companies to actively manage the impact of dilution, discounts and fees as well as to be in the room during allocations to ensure that “existing investors are the first offered to at least their pro-rata position.”
“Investor protections must return swiftly once the temporary period ends,” said Davidson said. “The new class waivers could lead to costly capital raisings that destroy shareholder value and dilute existing investors.”