At The Motley Fool, we are not only focused on helping Australians invest better, but we are also advocates for your individual rights.
I have written a prior article extolling the virtues of the Australian Stock Exchange's (ASX: ASX) new process of allocating shares for a float or capital raising, called ASXBookBuild. While not mandatory, if adopted by companies it will dramatically reduce the unfair discretionary practices of past floats and off-market placements.
Unfortunately, this will do nothing to redress past wrongs perpetuated on retail investors. Most prominently, during calendar years 2008 and 2009, a total of S99 billion was raised in new equity capital. Share placements, without an accompanying share purchase plan (SPP), were implemented by a number of companies including Commonwealth (ASX: CBA), Fortescue Metals Group (ASX: FMG) and Mirvac Group (ASX: MGR), which raised $2.0 billion, $644 million and $300 million respectively.
The Faculty of Business and Law at Deakin University have concerns about share placements, as stock is issued 'to a selected group of institutional and/or high net worth sophisticated investors and the high direct costs of doing so'.
The recent UK float of Royal Mail shares further highlights inequities present in the Australian market for initial public offerings (IPOs). After rocketing up 38% on its first day on the market, the UK government has endured heavy criticism from the press. In setting the float price low, taxpayers should have received £2.3 billion (actual £1.72 billion). Under the terms of the float, institutions were guaranteed to receive 67% of the share issue. Included were the Kuwaiti sovereign wealth fund, while the hedge fund Lansdowne Partners is already ahead by £20 million.
Irate retail investors in the float are having their allocations scaled back to £750 and anyone who applied for greater than £10,000 will not receive any shares.
Foolish takeaway
Retail investors need to band together to ensure that the ASXBookBuild process is utilised by companies. Activism was successful in 2009, when Westfield Group (ASX: WDC), initially refused to offer retail investors a SPP on the same terms as a $2.9 billion placement to institutions.
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Motley Fool contributor Mark Woodruff does not own shares in any of the companies mentioned in this article.
