Why is it still hard to take part in placings despite more retail investor offers?
I’ve seen several companies let retail investors take part in their fundraising but all the new shares are gone by the time I found out. Shouldn’t my ISA provider give me plenty of notice about these opportunities?
Senior reporter Ian Conway replies:
Shares has received numerous messages from readers regarding the flurry of new issues and the fact that retail investors have, for the most part, been prevented from taking part.
While more companies are now letting retail investors get involved, you are correct to say it still isn’t easy to get your hands on the new shares that are typically priced at a discount.
WHY ARE COMPANIES RAISING MONEY?
All shareholders have the right to dividends, to take part in new share issues (so-called pre-emption rights) and to vote at general meetings.
However, since the beginning of the Covid crisis UK companies have scrapped more than £30bn in dividend payments, leaving shareholders starved of income.
Adding insult to injury, many of the companies which scrapped their dividends are now issuing new shares to institutional investors and senior management at big discounts through non pre-emptive placings, meaning retail shareholders are being diluted (as there are more shares in issue) with no chance of participating.
LARGE NUMBER OF PLACINGS
Since March, approximately 175 companies have raised £12.9bn. Frustratingly just a handful of these placings were open to retail investors.
The situation is partly due to the decision by the Financial Conduct Authority (FCA) to waive the requirement for companies to make placings pre-emptive, based on their need to raise funds as quickly as possible, in some cases just to keep the lights on.
This has allowed companies, or more accurately their brokers, to approach big institutional investors and offer them new shares, in a process known as ‘wall-crossing’. Once the order book is full and the placing is closed, the firm gets its money and the brokers pocket the fees.
Another part of the problem is that many retail investors hold their shares in nominee accounts, meaning they are invisible to the issuing company as individuals. Without a complete list of retail shareholders, companies can’t offer them equal rights.
RETAIL INVESTOR SOLUTION ISN’T PERFECT
One company which provides access for retail investors is PrimaryBid. Investors can download the firm’s app, put in their account details and when a company announces a new share issue with a retail tranche the investor receives an email notification. They can then opt to take part via the app on a first come, first served basis.
As these retail tranches don’t qualify as ‘corporate actions’ – events that need to be approved by shareholders such as stock splits, dividends, mergers and acquisitions, rights issues and spin-offs – ISA and self-invested pension providers are unlikely to make their customers aware of them.
These offers are also typically fully subscribed not long after they are announced at 7am or after the market close because the retail investment community is only given a small allocation of the overall fundraise. Fundraising from retail investors without issuing a prospectus is capped at €8m (£7.2m).
PrimaryBid chief executive Anand Sambasivan admits the first come, first served process isn’t perfect but it is in line with the accelerated bookbuild process used for institutional investors.
Retail offerings can also only take place if the issuing companies are prepared to include this group of investors in the fundraise. Many firms are just interested in raising cash in a hurry, but a growing number now appreciate that retail investors are being overlooked.
In recent weeks we’ve seen the likes of catering group Compass (CPG), online grocer Ocado (OCDO), serviced office provider IWG (IWG) and real estate investor Segro (SGRO) let retail investors take part in their share placings.
BLINK AND YOU MISS IT
Unless you’re glued to the screen watching stock market announcements at 7am or after the market close, there is a high chance you won’t find out about the opportunity in time. Many of these offers are filled in less than a few hours.
You’ve got as much chance of buying a ticket for Glastonbury festival as getting your hands on these discounted shares.
Possible solutions are to sign up to PrimaryBid’s database to be alerted about future fundraisings or set up an alert via Shares’ website for news on any company in which you have an interest.
Yet the former approach still has flaws. This author didn’t receive an email from PrimaryBid for Biffa’s (BIFF) offer until 29 minutes after it was announced to the stock market.
Perhaps a fairer way would be to give retail investors 24 hours to apply for shares and then spread the allocation among this group, even though this could potentially see those investors demanding large chunks having their desired amount of stock scaled back. This method would give investors more time to discover and consider the offers.
The first wave of companies raising money seemed to be doing so as an emergency measure. Now there is an increasing number raising new cash for long-term strategic reasons, so they can surely wait 24 hours for the money.
The alternative is for a company to conduct a documented deal such as an open offer or right issue which can take several weeks to complete.
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