The Macquarie Group Ltd (ASX: MQG) share price is 0.3% higher this morning to $132.31 after the investment bank revealed it will accept all eligible share purchase plan (SPP) applications from investors as a result of a recent capital raising.
In total it'll issue 5.7 million new shares worth $679 million to retail investors at $120 per share.
In September 2019 it raised $1 billion from institutional investors at the same $120 per share price. According to the bank it wants the funds to "invest for growth" and maintain an "appropriate level of capital" given the changing regulatory environment.
Over the last 5 years I've regularly tipped Macquarie as a good business to own for growth and yield with today's announcement providing another couple of more reasons why.
First up let's consider the fact that despite the capital raising being at a decent discount to the exchange traded price of $132 per share the bank was able to fill all applications made by retail shareholders who had the option to apply for up to $15,000 worth of shares.
Commonly smaller companies than the $46 billion investment bank will scale back retailer shareholder applications for shares when they're available at a discount.
For example Afterpay Touch Group Ltd (ASX: APT) is reportedly still planning to offer eligible retail shareholders the opportunity to participate in a $30 million capital raising.
Institutional investors were able to help themselves to $317 million worth of scrip back in June 2019 at $23 per share and any retail raising should be at the same price.
However, if the capital raising does go ahead its relatively small size means retail investors will be fighting for the crumbs and applications are likely to be heavily scaled back. For example it would only take 2,000 shareholders to apply for their full allocation ($30 million / $15,000) before a scale-back took effect.
Please note this is only speculation on my part though and worse news is that Afterpay has warned it may scrap the retail raising altogether in light of the problems associated with its current AUSTRAC audit.
Another tech high flyer that has heavily scaled back retail shareholder applications from memory is Appen Ltd (ASX: APX).
Generally the reasoning from these kind of smaller companies is that the additional administration processing retail applications creates additional cost and in fairness Afterpay and Appen are ahead of some businesses that exclude retail shareholders completely. Hello, Nearmap Ltd (ASX: NEA).
A family member and I were able to pick up 250 Macquarie shares at $120 each for $30,000, which we could sell today for more than $33,000 – over a $3,000 profit in a couple of weeks. Nothing to write home about, but the point is the bank had capacity to avoid a scale back despite it receiving 53,000 applications from retail investors.
If we divide $679 million by 53,000 we can see that the average application was for $12,811 which is surprising given the opportunity to book instant 'stag' type profits (less capital gains tax) was available to everyone subject to market forces.
While it's also worth noting the regulator ASIC has recently moved to double the application limit in SPPs for retail investors to $30,000, which in theory could offer the opportunity for even larger stag profits down the line.
I expect some retail investors didn't apply at all for the Macquarie SPP, which would have been a mistake and goes to show why an investor should always keep some funds aside for these kind of opportunities.
Including the one that may soon be available to Afterpay shareholders.
