When shares are released from escrow it's usually accompanied by a fall in the share price. In a way, the event is similar to other forms of dilutive action. That's why one S&P/ASX 200 Index (ASX: XJO) constituent is gaining attention in the anticipation of a $7 billion release day.
After being pent up for more than two years, 1.186 billion shares in TPG Telecom Ltd (ASX: TPG) will be open for trade again on 13 July 2022.
The telecommunications giant has received an underwhelming reception, to say the least, since merging with Vodafone Hutchison. Since re-listing as the merged entity, the TPG share price has tumbled 33%.
Now, investors are nervously awaiting what another $7 billion worth of shares in this ASX 200 company might mean.
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Two sides of the same coin
For some background, as part of the Implementation of Scheme of Arrangement, TPG and Vodafone Hutchison agreed upon a voluntary share escrow. This meant major shareholders, such as TPG founder David Teoh, would not be able to sell down their holdings for more than two years.
Typically, voluntary escrow gives the market some reassurance that major shareholders won't cash out immediately after the finalisation of a deal. However, this restriction often only prolongs the inevitable selling that takes place.
Adding to the worry, investors have already seen firsthand how this ASX 200 share reacts when Teoh decides to sell. On 3 December 2021, the former TPG chair liquidated 20% of his ownership in the company, which equated to ~54.19 million shares. In response, the TPG share price plunged 6% as investors scrambled.
While 34 times the number of shares sold by Teoh in December will be readily available for sale in July, not all onlookers are focused on the downside. For instance, Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) managing director Todd Barlow has said:
There is currently an issue with the perceived overhang of shares that could come to the market. The conundrum is that the very fact these shares are coming out of escrow is depressing the share price, and because it's depressing the shares, they won't actually come to the market because the price isn't right to sell.
Furthermore, Barlow highlighted that the increased free float would make TPG eligible for inclusion in indices such as the S&P/ASX 100 Index (ASX: XTO).
What does this ASX 200 company's register look like?
When discussing the potential for share sales, it is important to understand the composition of shareholders. Out of the approximately 1.9 billion shares on issue, the top 25 shareholders own ~60%.
Notably, Vodafone Hutchison and David Teoh are the two largest shareholders — holding 27.8% and 17.2% respectively. Both of these parties will be able to sell a substantial portion of their holdings after 13 July, however, that doesn't mean they will.
The only other significant shareholder on the register is the Australian investment house, Washington Soul Patts.
