Retail and SMSFs short-changed again from capital raisings

Retail and self-managed superannuation funds are losing out again when listed companies raise capital as institutional investors are favoured, according to the SMSF Association. 

Speaking on a webinar, the association’s chief executive, John Maroney, said the regulatory framework overseeing equity capital needed to be reformed to remove this anomaly in the capital markets. 

He said this had happened post the Global Financial Crisis and it was happening again as companies looked to quickly raise capital as COVID-19 created economic uncertainty. 

“It means retail and SMSF investors are disadvantaged twice. Not only are their shareholdings in these companies diluted, but they miss the opportunity to buy shares at prices that are often a hefty discount to the market price. Clearly, it’s not a level playing field,” he said. 

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Maroney said this was exacerbated this year when the corporate regulator and the Australian Securities Exchange announced on 31 March temporary emergency capital raising measures to help companies raise urgently needed capital, especially by allowing the 15% placement capacity to be lifted to 25%, a decision that disadvantaged existing retail shareholders. This measure was due to expire on 30 November 2020. 

Also speaking, Wilson Asset Management chair and chief investment officer, Geoff Wilson, said following the GFC $30 billion was raised which was mostly by placements to wholesale investors at an average 17% discount to the market price. 

“By our reckoning, the retail end of the market was short-changed by $6 billion. This was totally unacceptable and similar dilution and lack of retail access has been occurring this year,” he said. 

Maroney said three steps that could be taken to level the playing field were: 

• Large ASX-listed companies should structure their offers to maximise access for all investors to a proportionate offer, including setting aside a certain allocation for retail-focused brokers to offer to retail and SMSF clients. If retail/SMSF shareholders own 30% of company, the raising should come as close as possible to represent 30% of the offering to them; 
• If a company does not offer SMSF/retail investors the chance to participate then they need to publicly explain why; and 
• Companies should clearly disclose their post-allocation to all investors. Allowing investors to scrutinise these decisions will place more pressure on companies to act in the interests of all shareholders. 

The SMSF Association also said it believed a single digital retail platform that built on advancements in financial technology was a crucial step as it would create more efficient mechanisms for fund raising from SMSFs and other retail investors. 

“Participants could register on the platform, helping facilitate an even quicker process for companies and brokers to access all shareholders. Not only would this be effective for capital raisings but may be useful for larger-scale infrastructure investments from which SMSFs are typically excluded,” he said.