Manningham, bank bashing, capital raisings, Fairfax, Asciano, NAB, McCrann, Charlie Aitken, developers and much more
March 23, 2010
Dear Mayne Reporters,
First up in this edition, check out today's column for the Fairfax websites ripping into Big Four bank cartel for treating customers and their own small shareholders appallingly.
There's a reference in the column about improving credit conditions and the full set of numbers tracking Big Four bad debt provisions over the past five years are available in a new list on our website here.
That CBA reduction in bad debt provisions for the June half revealed last Wednesday is a major moment because it signals the cartel is over the worst of the credit crisis. Besides, with property prices and stockmarkets roaring back, you can expect some major lenders might be able to start writing back earlier provisions.
There's much more on all this in the 1500-word bank spray for Fairfax which is rating well as the top business story on www.theage.com.au this afternoon so do check it out.
Amcor and Boart Longyear join the capital raising club
Debt-laden mining services company Boart Longyear and packaging giant Amcor have today joined the long list of companies unveiling big capital raisings and when all is bedded down, both will feature in the top 20 of this comprehensive list looking at the companies who have collectively raised a staggering $90 billion in fresh capital over the past two years.
The $756 million Boart issue is very similar to Asciano's recent offer which was highly dilutive for retail investors. Whilst retail investors will get to participate in Boart's 1-for-1 offer at 27c - a whopping 38% discount to Friday's close of 44c - institutions will also be offered $350 million worth of stock in a selective placement.
If non-conflicted retail shareholders approve the $230 million share of this placement which exceeds the 15% placement rule and requires an EGM vote, they will be rewarded with a $15,000 share purchase plan at 27c.
It will be interesting to see if this SPP will be capped and whether the record date is delayed until after the September 24 EGM, as happened to Asciano because of the various regulations.
We're in for two entitlements at Boart Longyear and it certainly was an example of a company that was widely tipped to be raising capital, just like the well-flagged Amcor offer.
Given that both Asciano and Boart Longyear have recognised the dilutionary effect of big placements and the need to offer compensatory SPPs for retail investors, I'm going to start writing to all companies which have done institutional placements without SPPs this year and suggest that they revisit the issue.
For instance, Wesfarmers did a $900 million selective institutional placement at $14.25 as part of its $3.9 billion entitlement offer in February. Why on earth shouldn't retail investors be now offered an SPP for a similar amount based on the same discount that those institutions received in a needlessly dilutive raising conceived at the height of the panic?
This is an issue that will effect a wide range of companies and will play out in detail during the coming AGM season.
Lobbying Asciano to expand $100m SPP
The $100 million Asciano SPP closed on August 12 and the scale back announcement will be made on Wednesday before the shares start trading on Thursday. After a chat with the company's PR this morning, the following email was sent through for the board's deliberations:
If SPP applications of $180 million are received (assuming that is the maximum that can be raised under the listing rules), wouldn't it be fair to accept it all given the enormous dilution all those retail investors that did not participate in applying for extras in the entitlement offer have suffered.
There have been lots of precedents of companies accepting larger SPP applications than first flagged in announcements and here are just four from 2009:
ANZ went from $350m to $2.2 billion
Adelaide Brighton from $15m to $28m
Macquarie Leisure from $18.3m to $25m.
QBE Insurance from $100m to $126m
I know chairman Tim Poole and the board may be under pressure from institutional investors but by any measure retail investors have still been massively diluted and it would rub more salt in the wound to scale back the SPP when the institutional placement was bumped up by $350 million after the original announcement because of strong demand.
The other issue is whether some form of scale back preference can be given to those shareholders who were on the register before the record date for the entitlement offer.
Those new shareholders who opportunistically bought in hoping to qualify for the SPP with its later record date can be treated differently from everyone else, as Horizon Oil demonstrated in this scale back announcement.
Anyway, I look forward to seeing the outcome of your deliberations and discussing these matters further at the AGM.
Regards, Stephen Mayne
Asciano shareholder who has applied for three entitlements, one of which is the opportunistic category discussed above.
Manningham council audio available
It is good to see that Manningham City Council has made public council meetings more accessible for the community by putting audio files of the debate on the website.
Just like we do with radio and AGM appearances, we've edited our contributions at council meetings down into this package in a new section on the site dedicated to Manningham issues.
Here are a couple of samples:
Speaking against Westfield greed on Doncaster apartment proposal
From the June 30 meeting which voted 9-0 to reject Westfield's 10-storey apartment proposal in line with the recommendation from the planning department.
Defending the lowest rate rise in 10 years
From the June 29 special meeting to approve the 4-year council plan and 2009-10 budget
Gently opposing flying the Indigenous flag all year round
From the April 28 council meeting when the mayor and deputy mayor walked in an amendment to the officer recommended Indigenous policy on the night of the meeting. This Manningham council is more left-progressive than its predecessors and we will be flying the flag all year round, which probably isn't a bad thing.
We'll be increasing our coverage on Manningham from here on so if you know anyone in Melbourne's eastern suburbs interested in local government issues tell them to sign up here and join our 5000-strong email list.
Development on Doncaster Hill and the huge Eastern Golf Club site
The council meeting last Tuesday night was an interesting affair when a proposed $30 million apartment development on Doncaster Hill was only approved 5-4, despite a strong officer recommendation and only 3 objections.
This was in stark contrast to the Westfield rejection at the previous meeting which had the community up in arms with a record 160 objections and a refusal recommendation from the officers.
The three Koonung ward councillors - Mayor Charles Pick, deputy mayor Fred Chua and Ivan Reid - all voted against the latest development proposal, even though it is in line with the state Labor Government's planning policy of promoting intense development around activity centres. Three of our nine councillors are ALP members and all of them voted against the development which shows they are independent when it comes to planning policy.
The understanding at Manningham is that we'll be able to keep our green wedge and much-loved acre blocks (there are 1400 private tennis courts in the municipality), provided we promote intense development around the redeveloped Westfield shopping centre on Doncaster Hill and other activity centres.
The biggest criticism of the Doncaster Hill strategy so far is that we haven't delivered enough actual apartment developments over the past decade so it would have been an interesting message to knock back this latest proposal back.
The biggest planning issue on the horizon for the Koonung ward councillors and the broader Doncaster area is the redevelopment of the giant 47ha Eastern Golf Club site just on the city side of the Doncaster Hill activity centre zone.
The story was page three lead of Rupert Murdoch's local giveaway, The Manningham Leader, last week with a sale price exceeding $100 million being tipped. There were big ads across two pages in The AFR last Wednesday declaring the site to be the last major in-fill development opportunity available in Melbourne.
The developers are coming, the community is not happy and as a council it would be good to stay inside the tent on a process that could well see the state government intervene on a private site zoned for residential development that could be deemed to be of state significance.
The was certainly what happened 5 kilometres closer to town with the 27ha Kew Cottages site which was taken over by the state government after Boroondara Council attempted to secure more than 40% of the site as public open space.
Billionaire Sydney developer Lang Walker - who tastefully ripped out the famous marble steps from Georges in Collins Street and installed them in his Sydney apartment - rode into Kew with Graham Richardson and a $100,000 donation for the ALP and the council was nowhere to be seen.
The Kew Cottages project was then flicked to Mirvac in 2007 as part of a $1.2 billion deal and development proceeded, although profits haven't been as strong as first hoped and the Walker branding is still featured on the site.
The likes of Lang Walker, Mirvac, Stockland and Australand are the sorts of players expected to bid for what is being marketed as Doncaster Green and they must lodge their expression of interest by September 17.
It's an issue that will consume much of our attention over the coming months, although actual development is still some years off because the club must build their new championship course on land secured in the neighbouring municipality of Yarra Ranges before the estimated $500 million-plus in new development will proceed on the site.
Classic cornwall
Will NAB scale back its retail shareholders?
As NAB considers whether to impose a heavy scale back and limit its retail investors to just $750 million in the current share purchase plan offer, they should consider the arguments made in this email from The Mayne Report to the top brass a couple of months back:
Dear top NABbers,
On behalf of your retail shareholder base, I'd like to politely suggest you embark on a share purchase plan to help fund today's Aviva acquisition.
As this recent piece on the Fairfax websites points out, NAB's last placement/SPP capital raising had one of the lowest retail components we've seen in the recent spate of offerings at just 7.7%.
Given that Macquarie raised more from its retail investors than through its $540 million institutional placement and CBA brought in 30% of its latest capital raising from retail investors, surely now would be a good time for NAB to launch an SPP, taking advantage of the expanded maximum of $15,000.
After all, the institutions who bought $3 billion worth of your stock at $20 in that selective placement last December are now massively in front, far more so than the retail investors who bought $250 million worth of NAB stock at $19.97 in the follow through SPP. Your share register is certainly not 90% institutional yet that's how last year's capital raising divided up the profits.
Given you've stated today that you can handle the 15 point drop in tier 1 capital, why not just launch a leisurely non-underwritten SPP. Can I suggest appropriate pricing would be $22 a share or a 5% discount to VWAP up until the close.
I hope you'll look favourably at this suggestion because retail investors as a class have been diluted to the tune of billions during the recent spate of capital raisings.
As a company that looks after the savings of millions of Australians, this would send a good message that you recognise the need to accommodate small investors, not just the big end of town.
Us small investors would also happily help you raise a few hundred million without gouging out an under-writing fee of 2%-plus.
Sorry for spraying you with a group email and I look forward to a reply. Better still, don't reply at all but just announce the SPP.
Best wishes, Stephen Mayne
Small NAB shareholder
Unfortuately, NAB went ahead and did another dilutive $2 billion selective placement to institutions and then flagged they would limit the following SPP to just $750 million, which doesn't reflect the relative position of institutional and retail investors on the register.
Meanwhile, it was good to see The Age's Malcolm Maiden weigh into the debate about NAB's capital raising on Friday.
The debt challenge gets larger and larger
The following item led this morning's edition of www.thesheet.com, the daily banking ezine published by industry guru Ian Rogers:
Issuance continued apace in the domestic market last week. Just two weeks into August and corporate bond issuance for the month already amounts to A$7.4 billion, more than half of the record issuance seen in July, which came to A$14.1 billion (revised upwards from earlier reports).
This pushes the year-to-date issuance volume well past the annual record of A$62.3 billion, set in 2006. Year-to-date issuance now stands at A$66.4 billion.
Issuance volumes in recent months have run well ahead of the A$10.9 billion of corporate bonds maturing in September. Perhaps attention is now focused on the A$48.5 billion of corporate bonds that will mature next year. Many of these bonds will have already been moved into investor's cash portfolios.
Perhaps it is also worth mentioning that there will be more than A$61 billion of bonds maturing in 2011 and more again in 2012. And those numbers will continue to get larger.
Indeed, that is the scariest thing about Australia's growing debt addiction and our tactic of using the banking system to fund an unsustainable current account deficit. Check out this list tracking all federal government bond issues by the Rudd Government. You'll notice that Friday's $800 million tender of 8-year bonds went for 5.4%, which is well above the 4% average interest cost used in the budget forward estimates.
The Federal Government's annual interest bill will top $5 billion for the first time since the Keating years in 2009-10 and there is no sign of any plan to bring it under control.
Below is the results from the last 4 Federal government bond tenders:
Friday, August 14, 2009: $800m tender of 5 year bonds expiring in April 2012 were sold for an average yield of 5.4% and was 3.3 times over-subscribed.
Wednesday, August 12, 2009: $500m tender of 11 year bonds expiring in April 2020 were sold for an average yield of 5.6% and was 2.6 times over-subscribed.
Friday, August 7, 2009: $800m tender of 4 year bonds expiring in May 2013 were sold for an average yield of 5.3% and was 3.9 times over-subscribed.
Wednesday, August 5, 2009: $500m tender of 6 year bonds expiring in April 2015 were sold for an average yield of 5.5% and was 4.1 times over-subscribed.
Mega-bull Charlie Aitken getting nervous
Southern Cross Equities institutional boss Charlie Aitken is getting himself into the subscription newsletter business and his daily offerings are certainly worth trying. As one of the most noted bulls in the market, it was interesting to read Charlie's concern about share prices being over-valued in this morning's missive. Here's a sample of what he wrote:
While there was a fraction of overdue profit taking and some classic intraday reversals in large cap stocks (CBA, BHP) that have led the rally in Australia on Friday, I remain of the view that the market does need a broader breather. People have clearly given up on the possibility of a pullback and have thrown cash at the market. However, I want to remain fully invested (most in laggards) but disciplined, very disciplined.
We have a couple of near term head winds. Wall St looks a fraction toppy, the Chinese markets are falling for some reason, commodity prices look a fraction toppy, some leading stocks are at P/E's I struggle with (BHP, CBA in particular), the ASX200 will broadly go ex dividend in a few weeks, Asian investors have reweighted into Australian banks but even that appears to be slowing down and the reporting season hasn't led to the net earnings upgrades to FY10 that were required to really drive the market higher in the short-term. Industrial issuance is picking up, private equity IPO's are pending, and the headlines in the popular press over the weekend would have had most Australian households believing the RBA will raise interest rates by 2.00% by Christmas. Merry Xmas.
While I don't believe Australian cash rates will rise 2% by Christmas, they will be 50 or 100 basis points higher and that will give markets some food for thought. With stimulus now mostly spent and cash rates moving higher, is it time to short discretionary retailers in Australia who appear to be pretty fully priced? I think the answer is yes and I think the 2nd half will be a touch harder for the discretionary retailers as households prepare themselves for rate hikes. I'd be switching from discretionary retailers to supermarket retailers and saving myself around 4 P/E points. Similarly, I like the trade short tenants long landlords in the retail Listed Property Trusts space, with Westfied (WDC) and Stockland (SGP) both core long recommendations.
I am just a touch concerned that Glenn Stevens will tap the economic breaks and get more stopping power than he realises. The jawboning of rates higher has started and I just don't want to be exposed to discretionary retailers for the next little while, particularly on the multiples they currently command.
Click here to sign up for a 21-day free trial to Charlie's newsletter which will probably be worth the $275 a year he is asking if he can sustain the quality of his content.
Meanwhile, it was amusing to read this profile of Charlie by The Age's Christopher Webb a few months back. I particularly liked Charlie's quote about his influential and well-regarded father: "Dad hated spivs. He wouldn't care if the stock went up 500 times, if a spiv ran it, he just wouldn't buy it."
Hmmm, and which company has Southern Cross been most associated with over the past few years? A certain Fortescue Metals Group run by a certain Andrew Forrest, who is currently facing ASIC proceedings to rub him out as a director for making misleading statements to the ASX about contracts with Chinese steel mills. What would Charlie's dad think of that?
Rupert's chief “useful idiot” and the great climate change conspiracy
The following story was submitted twice to Crikey last week but it didn't make the cut. No feedback as to why but here it is anyway:
Crikey founder Stephen Mayne writes:
Rupert Murdoch's most sycophantic business commentator Terry McCrann has this week taken his decade of conspiracy theorising with fellow Herald Sun columnist Andrew Bolt about climate change to a new level.
Tuesday's column attacked “the disgraceful performance of the bulk of the media and in particular the Canberra Press Gallery, which has given the government a complete pass on the dynamics if not the detail of the ETS.”
Last Wednesday it was the turn of big business under a side-bar column head-lined “The sins of useful of idiots”. Business Council of Australia chairman Greg Gailey was compared with Lenin's western sycophants for daring to suggest the Coalition and Government should work together to get the carbon trading scheme right.
When McCrann isn't off prosecuting some political obsession, his corporate columns sometimes hit the mark. A couple of recent efforts on small shareholders getting ripped off in capital raisings have been worth reading.
However, McCrann's biggest failing is the inability to impartially comment on Rupert Murdoch's business affairs. When it comes to covering News Corp, he may as well be sitting on the knee of James Hardie turned News Ltd spinner Greg Baxter taking dictation.
McCrann is the ultimate “useful idiot” for Murdoch, yet he naturally can't see the irony of labelling others as lackeys to a dictator.
The only person left for McCrann to attack for being in the great global climate change conspiracy is Rupert himself, but, of course, he never will malign the man who made him a millionaire and in 2007 declared climate change a serious problem that needed to be tackled as this profile in Fortune magazine explains.
C'mon Terry. Prove you're fearless and let fly at your Prius-owning boss!
After all, no-one else is being spared. McCrann's main column last Wednesday was an attack on wannabe BHP-Billiton chairman John Schubert, who somehow wasn't suitable for the job because he chairs the Great Barrier Reef Foundation which is actually concerned about damage caused by carbon emissions. It seems only climate change deniers should have applied.
However, at least McCrann did manage to partially recant on last week's eulogy to outgoing BHP-Billiton boss Don Argus by actually criticising his record, most notably that “paying too much for Billiton” was “the big black mark on his decade as chairman”.
Hang on a minute. If giving away 42% of BHP to a bunch South African buccaneers was a “big black mark”, how on earth could McCrann earlier describe the entire Argus record as “one of the most illustrious careers we have seen in our corporate history”.
Sadly, McCrann has also been a “useful idiot” for the dictatorial Argus over a long period, brushing over his decidedly mixed record as a professional director.
Mike Mangan's latest column
By Mike Mangan
Thursday was the day the Australian market finally consigned the GFC to the history books. Almost every dog of the past year was let off its investment leash. And away they went. The Centro twins, recapitalised Virgin Blue & Australian Vintage and a host of others, all up spectacularly.
Analysts by and large are still modeling earnings in a GFC world. But in the last week the penny has dropped. They've significantly upgraded BHP, Com Bank, JB Hi Fi, Cochlear, Resmed, Alumina, Stockland, Fletcher Building, WA Newspapers and Bradken to name a few. We're only in the second week of the earnings season. So there could be a lot more upgrades to come.
Academics will spend the next several decades dissecting the GFC and trying to work out what the hell happened. Meanwhile investors can get on with the job of trying to out perform each other. Happy days! Yes another bubble is brewing – but that's a story for another day, another month and hopefully another year. So click clack, front‘n back. At least this ride should be a lot more pleasant than last year's effort.
You can find my full article on Business Spectator here.
Businessday drives great traffic
Whilst Fairfax doesn't exactly shout it from the roof tops, there is no doubt that it is streets ahead of the pack when it comes to generating internet traffic for business news in Australia.
Fairfax columnist Michael Pascoe put some figures on the table in this column last week when Rupert Murdoch boldly declared he was going to start charging for News Ltd websites.
Our experience in writing for www.businessday.com.au is that the columns generate a lot of interest and feedback, which even spills over into our own traffic.
In 2008 we had 493,439 page views and 313,725 unique visitors for the year. So far in 2009 we have surpassed those figures with 585,555 page views and 341,512 unique visits up until mid-August. Of course, there's no revenue in this because we're not charging readers or advertisers but it is good to build traffic and the difference has been the association with Fairfax
Here are links to some of our Fairfax columns with the traffic figures for The Mayne Report on the day in question. An average day of traffic for us is around 2000 page views and 1000 unique visits and it is interesting that our six biggest days over the past two years have all coincided with the publication of Fairfax columns as follows:
How to make $75,000 in three months
May 19, 2009
A comprehensive look at the system of capital raisings in Australia.
21,912 page views and 11,043 unique visits
How to cash in
August 7, 2009
The unprecedented run of capital-raising windfalls is continuing for the vigilant investor and if the markets keep recovering the next wave will no doubt be a flood of new floats.
17,151 page views and 9496 unique visits
Easy money on the table
June 23, 2009
The odds are stacked against small investors as companies rush to raise billions. Here's how to get a fairer roll of the dice.
10,451 page views and 5,532 unique visits
How small investors miss out
June 16, 2009
Ripping into MacMahon, Asciano and the whole dodgy system of placements and scale backs
10,404 page views and 7,162 unique visits
Get rich quick - Part II
June 2, 2009
More advice for retail shareholders in capital raising deluge
7,319 page views and 3,580 unique visits
Biggest pay cuts in history
May 1, 2009
The Macquarie Group net profit is down 52% to $871 million, but the headline news today is the biggest pay cuts in Australian corporate history.
5,910 page views and 4,060 unique visits
Profiting at Leisure
June 29, 2009
There's still time to make some money off Macquarie Leisure - but you have to move today.
5,234 page views and 3,566 unique visits
Paris Hilton's $1m party tab for ANZ
April 28, 2009
Party excesses send warnings about company collapses. Pity the ANZ missed Paris Hilton's New Year frolic.
4,246 page views and 2,237 unique visits
AGM season of revolt
March 30, 2009
Stuck the neck out predicting the Westfield remuneration report will be defeated at next month's AGM, along with AMP director David Clarke who will be punished for his role as chief executive of Allco Finance Group.
3,383 page views and 2116 unique visits
New Rio chairman is a dud
April 21, 2009
The Rio Tinto board needs a comprehensive clean out and they should start with a few more Australians.
2,486 page views and 1,618 unique visits
In defence of greenmailer Nicholas Bolton
April 15, 2009
A defence of maverick BrisConnections greenmailer Nicholas Bolton for humbling another Nicholas almost twice his age - Macquarie CEO Nicholas Moore.
2,666 page views and 1,430 unique visits
Truth and fiction on executive pay
April 6, 2009
A comprehensive scene-setter ahead of the SBS program Insight which has assembled an interesting panel for a one hour debate on executive pay in Australia.
2,426 page views and 1,543 unique visits
Sir Rod in need of a rescue
March 24, 2009
Predicted that only the Chinese Government voting Chinalco's 9% stake in Rio Tinto will save the teflon knight from defeat at this month's Rio Tinto AGMs in London and Sydney.
2,308 page views and 1190 unique visits
Scheduling the 2009 AGM season
We've made some more progress in our attempt to pre-schedule the 2009 AGM season such that major clashes can be avoided. Click here to see the current major clashes. As usual, the last week of October is the busiest time.
Tales from the talk circuit
The talk circuit continues to keep us busy with an appearance in Sydney on Wednesday at the Inaugural Australian Economic Forum.
The one hour panel is assessing the fallout from the global financial crisis and I've got 10 minutes to assess the implications for shareholders. The three other speakers are Michael Stutchbury from The Australian, Westpac chief economist Bill Evans and APRA chairman Dr Jim Laker. The overall line up looks very interesting so I'm staying for a full day.
Finally, go here for feedback after some of our speeches.
Capital raising plays continue to deliver
After a gain of $2860 on Friday courtesy of exits from the Roc Oil and Innamincka Petroleum capital raising offers, the total gross profits for the year are now just a smidgeon shy of $200,000, as you can see here.
This is the monthly breakdown and we're hopeful of cracking $30,000 again in August if Asciano and NAB don't get heavily scaled back and see their share prices hold up at current levels:
January: broke even
February: broke even
March: $10,170 profit
April: $36,996 profit
May: $31,639 profit
June: $86,600 profit
July: $28,293 profit
August: $6632 so far
Offers we're currently committed to
We've currently got outstanding bets laid of $115,000 which breaks down as follows:
Asciano: $30,000 into three $10,000 SPP entitlements at $1.10 which trades on August 20.
Australand: $15,000 so far into 40c entitlement offer with ability to apply for $40,000 worth of extras. Closes August 21 and trades September 2.
CBH Resources: $15,000 SPP at 10c which closed on July 31 and trades September 1 after EGM.
National Australia Bank: $30,000 into two $15,000 SPPs at $21.50 which close on August 21 and trade on August 31.
Virgin Blue: $23,000 so far into 20c offer with unlimited ability to apply for extras and closes on August 28.
Whitehaven Coal: $2000 so far into $15,000 SPP at $3.05 which closes August 31 and trades September 7.
The list of upcoming offers we're considering can be found here.
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Video Blog and podcasts
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More Cornwall cartoons for The Mayne Report
Former Fairfax and Crikey cartoonist Mark Cornwall has been contributing his satirical commentary to the Mayne Report since March 2009. Here is a collection of his best cartoons and there are now some amusing animations he has begun. Go here to see his animations and below are some new offerings:
World biggest small portfolio gets smaller still
The world's biggest small share portfolio looked like this when we last produced a spreadsheet:
August 7, 2009: portfolio of 634 holdings worth $39,359. Overall paper loss of $18,226 and average holding worth $53.
Press Room
Click the link to get the latest radio and AGM audio via itunes so you can listen on your ipod or iphone on the go.
774 ABC Melbourne - discussing annual profit results and Clive Peeters.
If you missed watching the video of the IQ debate on the topic "The media cannot be trusted to tell the truth", you can listen here or get the podcast.
That's all for now.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.
First up in this edition, check out today's column for the Fairfax websites ripping into Big Four bank cartel for treating customers and their own small shareholders appallingly.
There's a reference in the column about improving credit conditions and the full set of numbers tracking Big Four bad debt provisions over the past five years are available in a new list on our website here.
That CBA reduction in bad debt provisions for the June half revealed last Wednesday is a major moment because it signals the cartel is over the worst of the credit crisis. Besides, with property prices and stockmarkets roaring back, you can expect some major lenders might be able to start writing back earlier provisions.
There's much more on all this in the 1500-word bank spray for Fairfax which is rating well as the top business story on www.theage.com.au this afternoon so do check it out.
Amcor and Boart Longyear join the capital raising club
Debt-laden mining services company Boart Longyear and packaging giant Amcor have today joined the long list of companies unveiling big capital raisings and when all is bedded down, both will feature in the top 20 of this comprehensive list looking at the companies who have collectively raised a staggering $90 billion in fresh capital over the past two years.
The $756 million Boart issue is very similar to Asciano's recent offer which was highly dilutive for retail investors. Whilst retail investors will get to participate in Boart's 1-for-1 offer at 27c - a whopping 38% discount to Friday's close of 44c - institutions will also be offered $350 million worth of stock in a selective placement.
If non-conflicted retail shareholders approve the $230 million share of this placement which exceeds the 15% placement rule and requires an EGM vote, they will be rewarded with a $15,000 share purchase plan at 27c.
It will be interesting to see if this SPP will be capped and whether the record date is delayed until after the September 24 EGM, as happened to Asciano because of the various regulations.
We're in for two entitlements at Boart Longyear and it certainly was an example of a company that was widely tipped to be raising capital, just like the well-flagged Amcor offer.
Given that both Asciano and Boart Longyear have recognised the dilutionary effect of big placements and the need to offer compensatory SPPs for retail investors, I'm going to start writing to all companies which have done institutional placements without SPPs this year and suggest that they revisit the issue.
For instance, Wesfarmers did a $900 million selective institutional placement at $14.25 as part of its $3.9 billion entitlement offer in February. Why on earth shouldn't retail investors be now offered an SPP for a similar amount based on the same discount that those institutions received in a needlessly dilutive raising conceived at the height of the panic?
This is an issue that will effect a wide range of companies and will play out in detail during the coming AGM season.
Lobbying Asciano to expand $100m SPP
The $100 million Asciano SPP closed on August 12 and the scale back announcement will be made on Wednesday before the shares start trading on Thursday. After a chat with the company's PR this morning, the following email was sent through for the board's deliberations:
If SPP applications of $180 million are received (assuming that is the maximum that can be raised under the listing rules), wouldn't it be fair to accept it all given the enormous dilution all those retail investors that did not participate in applying for extras in the entitlement offer have suffered.
There have been lots of precedents of companies accepting larger SPP applications than first flagged in announcements and here are just four from 2009:
ANZ went from $350m to $2.2 billion
Adelaide Brighton from $15m to $28m
Macquarie Leisure from $18.3m to $25m.
QBE Insurance from $100m to $126m
I know chairman Tim Poole and the board may be under pressure from institutional investors but by any measure retail investors have still been massively diluted and it would rub more salt in the wound to scale back the SPP when the institutional placement was bumped up by $350 million after the original announcement because of strong demand.
The other issue is whether some form of scale back preference can be given to those shareholders who were on the register before the record date for the entitlement offer.
Those new shareholders who opportunistically bought in hoping to qualify for the SPP with its later record date can be treated differently from everyone else, as Horizon Oil demonstrated in this scale back announcement.
Anyway, I look forward to seeing the outcome of your deliberations and discussing these matters further at the AGM.
Regards, Stephen Mayne
Asciano shareholder who has applied for three entitlements, one of which is the opportunistic category discussed above.
Manningham council audio available
It is good to see that Manningham City Council has made public council meetings more accessible for the community by putting audio files of the debate on the website.
Just like we do with radio and AGM appearances, we've edited our contributions at council meetings down into this package in a new section on the site dedicated to Manningham issues.
Here are a couple of samples:
Speaking against Westfield greed on Doncaster apartment proposal
From the June 30 meeting which voted 9-0 to reject Westfield's 10-storey apartment proposal in line with the recommendation from the planning department.
Defending the lowest rate rise in 10 years
From the June 29 special meeting to approve the 4-year council plan and 2009-10 budget
Gently opposing flying the Indigenous flag all year round
From the April 28 council meeting when the mayor and deputy mayor walked in an amendment to the officer recommended Indigenous policy on the night of the meeting. This Manningham council is more left-progressive than its predecessors and we will be flying the flag all year round, which probably isn't a bad thing.
We'll be increasing our coverage on Manningham from here on so if you know anyone in Melbourne's eastern suburbs interested in local government issues tell them to sign up here and join our 5000-strong email list.
Development on Doncaster Hill and the huge Eastern Golf Club site
The council meeting last Tuesday night was an interesting affair when a proposed $30 million apartment development on Doncaster Hill was only approved 5-4, despite a strong officer recommendation and only 3 objections.
This was in stark contrast to the Westfield rejection at the previous meeting which had the community up in arms with a record 160 objections and a refusal recommendation from the officers.
The three Koonung ward councillors - Mayor Charles Pick, deputy mayor Fred Chua and Ivan Reid - all voted against the latest development proposal, even though it is in line with the state Labor Government's planning policy of promoting intense development around activity centres. Three of our nine councillors are ALP members and all of them voted against the development which shows they are independent when it comes to planning policy.
The understanding at Manningham is that we'll be able to keep our green wedge and much-loved acre blocks (there are 1400 private tennis courts in the municipality), provided we promote intense development around the redeveloped Westfield shopping centre on Doncaster Hill and other activity centres.
The biggest criticism of the Doncaster Hill strategy so far is that we haven't delivered enough actual apartment developments over the past decade so it would have been an interesting message to knock back this latest proposal back.
The biggest planning issue on the horizon for the Koonung ward councillors and the broader Doncaster area is the redevelopment of the giant 47ha Eastern Golf Club site just on the city side of the Doncaster Hill activity centre zone.
The story was page three lead of Rupert Murdoch's local giveaway, The Manningham Leader, last week with a sale price exceeding $100 million being tipped. There were big ads across two pages in The AFR last Wednesday declaring the site to be the last major in-fill development opportunity available in Melbourne.
The developers are coming, the community is not happy and as a council it would be good to stay inside the tent on a process that could well see the state government intervene on a private site zoned for residential development that could be deemed to be of state significance.
The was certainly what happened 5 kilometres closer to town with the 27ha Kew Cottages site which was taken over by the state government after Boroondara Council attempted to secure more than 40% of the site as public open space.
Billionaire Sydney developer Lang Walker - who tastefully ripped out the famous marble steps from Georges in Collins Street and installed them in his Sydney apartment - rode into Kew with Graham Richardson and a $100,000 donation for the ALP and the council was nowhere to be seen.
The Kew Cottages project was then flicked to Mirvac in 2007 as part of a $1.2 billion deal and development proceeded, although profits haven't been as strong as first hoped and the Walker branding is still featured on the site.
The likes of Lang Walker, Mirvac, Stockland and Australand are the sorts of players expected to bid for what is being marketed as Doncaster Green and they must lodge their expression of interest by September 17.
It's an issue that will consume much of our attention over the coming months, although actual development is still some years off because the club must build their new championship course on land secured in the neighbouring municipality of Yarra Ranges before the estimated $500 million-plus in new development will proceed on the site.
Classic cornwall
Will NAB scale back its retail shareholders?
As NAB considers whether to impose a heavy scale back and limit its retail investors to just $750 million in the current share purchase plan offer, they should consider the arguments made in this email from The Mayne Report to the top brass a couple of months back:
Dear top NABbers,
On behalf of your retail shareholder base, I'd like to politely suggest you embark on a share purchase plan to help fund today's Aviva acquisition.
As this recent piece on the Fairfax websites points out, NAB's last placement/SPP capital raising had one of the lowest retail components we've seen in the recent spate of offerings at just 7.7%.
Given that Macquarie raised more from its retail investors than through its $540 million institutional placement and CBA brought in 30% of its latest capital raising from retail investors, surely now would be a good time for NAB to launch an SPP, taking advantage of the expanded maximum of $15,000.
After all, the institutions who bought $3 billion worth of your stock at $20 in that selective placement last December are now massively in front, far more so than the retail investors who bought $250 million worth of NAB stock at $19.97 in the follow through SPP. Your share register is certainly not 90% institutional yet that's how last year's capital raising divided up the profits.
Given you've stated today that you can handle the 15 point drop in tier 1 capital, why not just launch a leisurely non-underwritten SPP. Can I suggest appropriate pricing would be $22 a share or a 5% discount to VWAP up until the close.
I hope you'll look favourably at this suggestion because retail investors as a class have been diluted to the tune of billions during the recent spate of capital raisings.
As a company that looks after the savings of millions of Australians, this would send a good message that you recognise the need to accommodate small investors, not just the big end of town.
Us small investors would also happily help you raise a few hundred million without gouging out an under-writing fee of 2%-plus.
Sorry for spraying you with a group email and I look forward to a reply. Better still, don't reply at all but just announce the SPP.
Best wishes, Stephen Mayne
Small NAB shareholder
Unfortuately, NAB went ahead and did another dilutive $2 billion selective placement to institutions and then flagged they would limit the following SPP to just $750 million, which doesn't reflect the relative position of institutional and retail investors on the register.
Meanwhile, it was good to see The Age's Malcolm Maiden weigh into the debate about NAB's capital raising on Friday.
The debt challenge gets larger and larger
The following item led this morning's edition of www.thesheet.com, the daily banking ezine published by industry guru Ian Rogers:
Issuance continued apace in the domestic market last week. Just two weeks into August and corporate bond issuance for the month already amounts to A$7.4 billion, more than half of the record issuance seen in July, which came to A$14.1 billion (revised upwards from earlier reports).
This pushes the year-to-date issuance volume well past the annual record of A$62.3 billion, set in 2006. Year-to-date issuance now stands at A$66.4 billion.
Issuance volumes in recent months have run well ahead of the A$10.9 billion of corporate bonds maturing in September. Perhaps attention is now focused on the A$48.5 billion of corporate bonds that will mature next year. Many of these bonds will have already been moved into investor's cash portfolios.
Perhaps it is also worth mentioning that there will be more than A$61 billion of bonds maturing in 2011 and more again in 2012. And those numbers will continue to get larger.
Indeed, that is the scariest thing about Australia's growing debt addiction and our tactic of using the banking system to fund an unsustainable current account deficit. Check out this list tracking all federal government bond issues by the Rudd Government. You'll notice that Friday's $800 million tender of 8-year bonds went for 5.4%, which is well above the 4% average interest cost used in the budget forward estimates.
The Federal Government's annual interest bill will top $5 billion for the first time since the Keating years in 2009-10 and there is no sign of any plan to bring it under control.
Below is the results from the last 4 Federal government bond tenders:
Friday, August 14, 2009: $800m tender of 5 year bonds expiring in April 2012 were sold for an average yield of 5.4% and was 3.3 times over-subscribed.
Wednesday, August 12, 2009: $500m tender of 11 year bonds expiring in April 2020 were sold for an average yield of 5.6% and was 2.6 times over-subscribed.
Friday, August 7, 2009: $800m tender of 4 year bonds expiring in May 2013 were sold for an average yield of 5.3% and was 3.9 times over-subscribed.
Wednesday, August 5, 2009: $500m tender of 6 year bonds expiring in April 2015 were sold for an average yield of 5.5% and was 4.1 times over-subscribed.
Mega-bull Charlie Aitken getting nervous
Southern Cross Equities institutional boss Charlie Aitken is getting himself into the subscription newsletter business and his daily offerings are certainly worth trying. As one of the most noted bulls in the market, it was interesting to read Charlie's concern about share prices being over-valued in this morning's missive. Here's a sample of what he wrote:
While there was a fraction of overdue profit taking and some classic intraday reversals in large cap stocks (CBA, BHP) that have led the rally in Australia on Friday, I remain of the view that the market does need a broader breather. People have clearly given up on the possibility of a pullback and have thrown cash at the market. However, I want to remain fully invested (most in laggards) but disciplined, very disciplined.
We have a couple of near term head winds. Wall St looks a fraction toppy, the Chinese markets are falling for some reason, commodity prices look a fraction toppy, some leading stocks are at P/E's I struggle with (BHP, CBA in particular), the ASX200 will broadly go ex dividend in a few weeks, Asian investors have reweighted into Australian banks but even that appears to be slowing down and the reporting season hasn't led to the net earnings upgrades to FY10 that were required to really drive the market higher in the short-term. Industrial issuance is picking up, private equity IPO's are pending, and the headlines in the popular press over the weekend would have had most Australian households believing the RBA will raise interest rates by 2.00% by Christmas. Merry Xmas.
While I don't believe Australian cash rates will rise 2% by Christmas, they will be 50 or 100 basis points higher and that will give markets some food for thought. With stimulus now mostly spent and cash rates moving higher, is it time to short discretionary retailers in Australia who appear to be pretty fully priced? I think the answer is yes and I think the 2nd half will be a touch harder for the discretionary retailers as households prepare themselves for rate hikes. I'd be switching from discretionary retailers to supermarket retailers and saving myself around 4 P/E points. Similarly, I like the trade short tenants long landlords in the retail Listed Property Trusts space, with Westfied (WDC) and Stockland (SGP) both core long recommendations.
I am just a touch concerned that Glenn Stevens will tap the economic breaks and get more stopping power than he realises. The jawboning of rates higher has started and I just don't want to be exposed to discretionary retailers for the next little while, particularly on the multiples they currently command.
Click here to sign up for a 21-day free trial to Charlie's newsletter which will probably be worth the $275 a year he is asking if he can sustain the quality of his content.
Meanwhile, it was amusing to read this profile of Charlie by The Age's Christopher Webb a few months back. I particularly liked Charlie's quote about his influential and well-regarded father: "Dad hated spivs. He wouldn't care if the stock went up 500 times, if a spiv ran it, he just wouldn't buy it."
Hmmm, and which company has Southern Cross been most associated with over the past few years? A certain Fortescue Metals Group run by a certain Andrew Forrest, who is currently facing ASIC proceedings to rub him out as a director for making misleading statements to the ASX about contracts with Chinese steel mills. What would Charlie's dad think of that?
Rupert's chief “useful idiot” and the great climate change conspiracy
The following story was submitted twice to Crikey last week but it didn't make the cut. No feedback as to why but here it is anyway:
Crikey founder Stephen Mayne writes:
Rupert Murdoch's most sycophantic business commentator Terry McCrann has this week taken his decade of conspiracy theorising with fellow Herald Sun columnist Andrew Bolt about climate change to a new level.
Tuesday's column attacked “the disgraceful performance of the bulk of the media and in particular the Canberra Press Gallery, which has given the government a complete pass on the dynamics if not the detail of the ETS.”
Last Wednesday it was the turn of big business under a side-bar column head-lined “The sins of useful of idiots”. Business Council of Australia chairman Greg Gailey was compared with Lenin's western sycophants for daring to suggest the Coalition and Government should work together to get the carbon trading scheme right.
When McCrann isn't off prosecuting some political obsession, his corporate columns sometimes hit the mark. A couple of recent efforts on small shareholders getting ripped off in capital raisings have been worth reading.
However, McCrann's biggest failing is the inability to impartially comment on Rupert Murdoch's business affairs. When it comes to covering News Corp, he may as well be sitting on the knee of James Hardie turned News Ltd spinner Greg Baxter taking dictation.
McCrann is the ultimate “useful idiot” for Murdoch, yet he naturally can't see the irony of labelling others as lackeys to a dictator.
The only person left for McCrann to attack for being in the great global climate change conspiracy is Rupert himself, but, of course, he never will malign the man who made him a millionaire and in 2007 declared climate change a serious problem that needed to be tackled as this profile in Fortune magazine explains.
C'mon Terry. Prove you're fearless and let fly at your Prius-owning boss!
After all, no-one else is being spared. McCrann's main column last Wednesday was an attack on wannabe BHP-Billiton chairman John Schubert, who somehow wasn't suitable for the job because he chairs the Great Barrier Reef Foundation which is actually concerned about damage caused by carbon emissions. It seems only climate change deniers should have applied.
However, at least McCrann did manage to partially recant on last week's eulogy to outgoing BHP-Billiton boss Don Argus by actually criticising his record, most notably that “paying too much for Billiton” was “the big black mark on his decade as chairman”.
Hang on a minute. If giving away 42% of BHP to a bunch South African buccaneers was a “big black mark”, how on earth could McCrann earlier describe the entire Argus record as “one of the most illustrious careers we have seen in our corporate history”.
Sadly, McCrann has also been a “useful idiot” for the dictatorial Argus over a long period, brushing over his decidedly mixed record as a professional director.
Mike Mangan's latest column
By Mike Mangan
Thursday was the day the Australian market finally consigned the GFC to the history books. Almost every dog of the past year was let off its investment leash. And away they went. The Centro twins, recapitalised Virgin Blue & Australian Vintage and a host of others, all up spectacularly.
Analysts by and large are still modeling earnings in a GFC world. But in the last week the penny has dropped. They've significantly upgraded BHP, Com Bank, JB Hi Fi, Cochlear, Resmed, Alumina, Stockland, Fletcher Building, WA Newspapers and Bradken to name a few. We're only in the second week of the earnings season. So there could be a lot more upgrades to come.
Academics will spend the next several decades dissecting the GFC and trying to work out what the hell happened. Meanwhile investors can get on with the job of trying to out perform each other. Happy days! Yes another bubble is brewing – but that's a story for another day, another month and hopefully another year. So click clack, front‘n back. At least this ride should be a lot more pleasant than last year's effort.
You can find my full article on Business Spectator here.
Businessday drives great traffic
Whilst Fairfax doesn't exactly shout it from the roof tops, there is no doubt that it is streets ahead of the pack when it comes to generating internet traffic for business news in Australia.
Fairfax columnist Michael Pascoe put some figures on the table in this column last week when Rupert Murdoch boldly declared he was going to start charging for News Ltd websites.
Our experience in writing for www.businessday.com.au is that the columns generate a lot of interest and feedback, which even spills over into our own traffic.
In 2008 we had 493,439 page views and 313,725 unique visitors for the year. So far in 2009 we have surpassed those figures with 585,555 page views and 341,512 unique visits up until mid-August. Of course, there's no revenue in this because we're not charging readers or advertisers but it is good to build traffic and the difference has been the association with Fairfax
Here are links to some of our Fairfax columns with the traffic figures for The Mayne Report on the day in question. An average day of traffic for us is around 2000 page views and 1000 unique visits and it is interesting that our six biggest days over the past two years have all coincided with the publication of Fairfax columns as follows:
How to make $75,000 in three months
May 19, 2009
A comprehensive look at the system of capital raisings in Australia.
21,912 page views and 11,043 unique visits
How to cash in
August 7, 2009
The unprecedented run of capital-raising windfalls is continuing for the vigilant investor and if the markets keep recovering the next wave will no doubt be a flood of new floats.
17,151 page views and 9496 unique visits
Easy money on the table
June 23, 2009
The odds are stacked against small investors as companies rush to raise billions. Here's how to get a fairer roll of the dice.
10,451 page views and 5,532 unique visits
How small investors miss out
June 16, 2009
Ripping into MacMahon, Asciano and the whole dodgy system of placements and scale backs
10,404 page views and 7,162 unique visits
Get rich quick - Part II
June 2, 2009
More advice for retail shareholders in capital raising deluge
7,319 page views and 3,580 unique visits
Biggest pay cuts in history
May 1, 2009
The Macquarie Group net profit is down 52% to $871 million, but the headline news today is the biggest pay cuts in Australian corporate history.
5,910 page views and 4,060 unique visits
Profiting at Leisure
June 29, 2009
There's still time to make some money off Macquarie Leisure - but you have to move today.
5,234 page views and 3,566 unique visits
Paris Hilton's $1m party tab for ANZ
April 28, 2009
Party excesses send warnings about company collapses. Pity the ANZ missed Paris Hilton's New Year frolic.
4,246 page views and 2,237 unique visits
AGM season of revolt
March 30, 2009
Stuck the neck out predicting the Westfield remuneration report will be defeated at next month's AGM, along with AMP director David Clarke who will be punished for his role as chief executive of Allco Finance Group.
3,383 page views and 2116 unique visits
New Rio chairman is a dud
April 21, 2009
The Rio Tinto board needs a comprehensive clean out and they should start with a few more Australians.
2,486 page views and 1,618 unique visits
In defence of greenmailer Nicholas Bolton
April 15, 2009
A defence of maverick BrisConnections greenmailer Nicholas Bolton for humbling another Nicholas almost twice his age - Macquarie CEO Nicholas Moore.
2,666 page views and 1,430 unique visits
Truth and fiction on executive pay
April 6, 2009
A comprehensive scene-setter ahead of the SBS program Insight which has assembled an interesting panel for a one hour debate on executive pay in Australia.
2,426 page views and 1,543 unique visits
Sir Rod in need of a rescue
March 24, 2009
Predicted that only the Chinese Government voting Chinalco's 9% stake in Rio Tinto will save the teflon knight from defeat at this month's Rio Tinto AGMs in London and Sydney.
2,308 page views and 1190 unique visits
Scheduling the 2009 AGM season
We've made some more progress in our attempt to pre-schedule the 2009 AGM season such that major clashes can be avoided. Click here to see the current major clashes. As usual, the last week of October is the busiest time.
Tales from the talk circuit
The talk circuit continues to keep us busy with an appearance in Sydney on Wednesday at the Inaugural Australian Economic Forum.
The one hour panel is assessing the fallout from the global financial crisis and I've got 10 minutes to assess the implications for shareholders. The three other speakers are Michael Stutchbury from The Australian, Westpac chief economist Bill Evans and APRA chairman Dr Jim Laker. The overall line up looks very interesting so I'm staying for a full day.
Finally, go here for feedback after some of our speeches.
Capital raising plays continue to deliver
After a gain of $2860 on Friday courtesy of exits from the Roc Oil and Innamincka Petroleum capital raising offers, the total gross profits for the year are now just a smidgeon shy of $200,000, as you can see here.
This is the monthly breakdown and we're hopeful of cracking $30,000 again in August if Asciano and NAB don't get heavily scaled back and see their share prices hold up at current levels:
January: broke even
February: broke even
March: $10,170 profit
April: $36,996 profit
May: $31,639 profit
June: $86,600 profit
July: $28,293 profit
August: $6632 so far
Offers we're currently committed to
We've currently got outstanding bets laid of $115,000 which breaks down as follows:
Asciano: $30,000 into three $10,000 SPP entitlements at $1.10 which trades on August 20.
Australand: $15,000 so far into 40c entitlement offer with ability to apply for $40,000 worth of extras. Closes August 21 and trades September 2.
CBH Resources: $15,000 SPP at 10c which closed on July 31 and trades September 1 after EGM.
National Australia Bank: $30,000 into two $15,000 SPPs at $21.50 which close on August 21 and trade on August 31.
Virgin Blue: $23,000 so far into 20c offer with unlimited ability to apply for extras and closes on August 28.
Whitehaven Coal: $2000 so far into $15,000 SPP at $3.05 which closes August 31 and trades September 7.
The list of upcoming offers we're considering can be found here.
Mayne Report RSS Feeds
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Video Blog and podcasts
Click here to get the latest TV appearences and Mayne Report videos via itunes.
More Cornwall cartoons for The Mayne Report
Former Fairfax and Crikey cartoonist Mark Cornwall has been contributing his satirical commentary to the Mayne Report since March 2009. Here is a collection of his best cartoons and there are now some amusing animations he has begun. Go here to see his animations and below are some new offerings:
World biggest small portfolio gets smaller still
The world's biggest small share portfolio looked like this when we last produced a spreadsheet:
August 7, 2009: portfolio of 634 holdings worth $39,359. Overall paper loss of $18,226 and average holding worth $53.
Press Room
Click the link to get the latest radio and AGM audio via itunes so you can listen on your ipod or iphone on the go.
774 ABC Melbourne - discussing annual profit results and Clive Peeters.
If you missed watching the video of the IQ debate on the topic "The media cannot be trusted to tell the truth", you can listen here or get the podcast.
That's all for now.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.