Macquarie capital raisings that mistreated retail shareholders

Flight Centre, 2020: The $700 million Flight Centre capital raising included a $282 million placement at $7.20 which diluted retail shareholders and a $418 million 1-for-1.72 non-renounceable entitlement offer at the same price, which was a 27.3% discount to the last traded price of $9.91. The three founders – CEO Graham Turner, Geoff Harris and Bill James – went into this crisis owning a combined 42% of the company and collectively committed $25 million of their $175 million entitlement, diluting themselves. The total number of shares on issue almost doubled. There was an ability for retail investors to apply for overs equivalent to 25% of their entitlement, which is way too restrictive from a small shareholder perspective. The founders went in through the institutional offer which was 96% subscribed by eligible instos. They should have gone in through the retail offer and also tucked into the 25% "overs". The $138 million retail offer finished 23% short, attractive $106 million from 13,116 applicants (there were about 22,000 shareholders listed in last year's annual report), including $14 million through the needlessly constrained overs facility which was capped at just 25% of entitlement. The under-writers Macquarie and UBS were on a winner with the stock trading around $10 during the offer, well clear of the $7.20 offer price, and higher later.

NAB, 2020: $3 billion fixed price placement at $14.15 followed by $500m SPP at the same price or a 2% discount to VWAP. The 500,000-plus retail shareholders owned 48% of the bank before the placement and if they all apply, more than $15 billion will come through the door even though retail are only being allocated 14.3% of the raising. Wrote to the board requesting an increase in the SPP cap and good detail in this placement conclusion announcement which commendably disclosed that no shares were allocated to non-shareholders. NAB has a history of SPP scalebacks, particularly in 2009 when it maintained a $750 million cap despite receiving $2.6 billion in applications. In the end, 155,000 shareholders applied for $2.9 billion worth of stock and the board lifted the cap to $1.25 billion using a pro-rata scale back method based on size of holding but with a minimum allocation of $2500. See outcome announcement. The $1.65 billion refund was only beaten by NAB's own $1.85 billion refund in 2009. Good transparency in the outcome announcement besides not releasing a table showing how many shares applicants would be allocated based on the size of their holding. Joint under-writer Macquarie and Goldman Sachs were paid an excessive $39 million fee, which was shared with sub-underwriters.

Oil Search, 2020: One of the key measures for fairness in capital raisings is the size of the placement compared with the size of the entitlement offer. Ideally, there would be no placement at all, but if there has to be one, it should comprise no more than one third of the offer. Advised by Macquarie, Oil Search was one of the worst offenders on this front when it launched a $760 million placement which was almost double the size of the 1-for-8 entitlement that raised an additional $400 million. A 1-for-8 is nothing. It clearly should have been the other way around with a placement of no more than $400 million and an entitlement offer raising double that amount. In a $1.16 billion offer, retail investors were offered only 6.9% of the raising ($80 million out of $1.16 billion) when we started out owning 20% of the company. The placement of 362 million new shares at a 23% discount of $2.10 also represented 23.74% of the pre-issue capital so it would have been illegal but for the special arrangements put in place for the COVID-19 crisis. All up, this was shocker, with the only minor saving grace being that retail shareholders were offered "overs" which were capped at 200% of their entitlement. The institutional component of the $320 million entitlement offer was 95% subscribed excluding largest shareholder Mubudala (Abu Dhabi sovereign fund) which didn't participate. Despite being heavily in the money, the retail offer fell $0.5 million short with applications for entitlements totalling $39.4 million and "overs" coming in at $40.1 million. This is a clear lesson about the need for unlimited "overs" when an offer is non-renounceable. See announcement.

Southern Cross Media, 2020: $169m raising at 9c comprising a $47 million placement and a $121 million entitlement offer. The placement comprised a ridiculous 68% of the pre-raising shares (522 million shares at 9c against 768.7m before the raising was launched). Stock had doubled to 18c during the offer period so massive dilution for retail shareholders. Non participants receive no compensation. Institutions took up 92% of their entitlements to the $102 million entitlement offer leaving an $8.16 million shortfall with the unknown sub-under-writers picked by Macquarie. The $20 million retail offer was only 66% subscribed (see final announcement) and the $6.8 million shortfall went to the under-writers because there was no ability for retail to apply for additional shortfall shares.

Super Retail Group, 2020: $203 million non-renounceable entitlement offer at $7.19, an 8% discount to the previous close of $7.81. Founder Reg Rowe agreed to take up his full $59.2 million entitlement (29.1%) and therefore won't be diluted. The $158 million institutional component (including Reg Rowe) was 95% subscribed with no disclosure on who got the $8 million shortfall. The failure to allow 10,000 retail shareholders to apply for additional shares in the $45 million retail offer, despite a specific written request to do so, has guaranteed a retail shortfall. Macquarie and UBS were the joint managers and under-writers, taking a fee of $2.05%, excluding the Reg Rowe component.

QANTAS, 2020: A $1.36 billion placement at $3.65 which represented the maximum 25% of pre-raising issued capital utilising the COVID-19 emergency provisions given that the normal placement is only 15%. The pricing was a steep 12.9% discount to the previous close or $4.19 and this will be followed by a $500 million SPP on the same terms or a 2.5% discount to the 5-day VWAP. With around 93,000 eligible shareholders, the theoretical maximum in SPP allocations is $2.79 billion, so the $500m cap represents 18% of this figure which is above the average. The placement outcome announcement disclosed that 94% of the stock went to existing holders so around $80 million came from non-shareholders. The raising was under-written by JP Morgan and Macquarie for a minimum fee of 1.35% or some $18.4 million. This really should have been a PAITREO offer.

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