3-minute read (updated 9 May 2020)
In a recent message to members, I commented on Auckland Airport’s (AIA) capital raising stating New Zealand Shareholders Association (NZSA) had received a few questions around the potential for dilution of their holding.
The issue was that in a $1.2b raise, $1b was by placement and $200m was a share purchase plan (SPP) with a $50k limit.
NZSA has continued to engage with AIA, its chair and Jarden post the announcement to give feedback on the size of the SPP relative to the placement and to gain assurances of how AIA would provide a fair opportunity for existing retail shareholders.
As you will be well aware, there was significant demand from retail investors for the $200m SPP that had a $50k cap per shareholder. The applications reached $489m which strongly suggests retail investors should have been offered more of the $1.2b capital raise.
AIA worked with Jarden to plan for the placement and SPP. In doing so we have been reassured they kept firmly in mind the need to minimise any dilutionary impact on retail investors while providing AIA with the urgent capital needed to secure its future.
As part of the planning, they reviewed historical capital raises and uptake from retail investors. In hindsight, I think they would agree that the historical data underestimated the demand from retail shareholders.
That said, the pressure then was on AIA to deliver against the commitment of minimising dilution to participating retail investors through scaling applications.
AIA shared with us its approach to and the outcome of the SPP and why they believed it provided a fair opportunity for all retail investors. Below is AIA’s reply
The overall dilutionary impact on retail investors has been minimal, with only 1.3% of shareholders that applied in the SPP having the potential to suffer dilution.
It is also important to note that those included in the 1.3% will have been exceptionally large shareholding individuals, who should have been able to bid in the placement through their broker to minimise dilution.
When analysing the outcome of the SPP, the key numbers are as follows
- Over 88% of shareholders will receive more than an equivalent pro-rata allocation under the SPP vs a $1.2bn rights offer
- Out of the 32,619 eligible shareholders that applied, 438 (1.3% of applicants) who are receiving the $50k allocation will not receive an equivalent pro rata allocation against the $1.2bn offer
- AIA and Jarden considered that these exceptionally large shareholders are likely to be broker advised and brokers did receive allocations in the placement.
- Some of the exceptionally large shareholders (in the 1.3%) who applied for the SPP are likely to be institutional style investors who also participated in the placement.
My summary is that AIA and Jarden did apply the methodology to provide existing retail investor shareholders with a fair opportunity to participate, but there are a couple of callouts from the approach.
The first is the use of historical data which significantly under forecast retail investors’ support for the capital raise. That said, with the approach used for scaling, 88% received more than an equivalent pro rata under the SPP.
Secondly, we are left uncertain regarding the impact suffered by significant retail investor shareholders (those included in the 1.3%). We are left uncertain because it depends on their broker’s allocation from the placement and how they applied it to these individuals.
I note the share price is currently trading at $5.70, 22% above the SPP offer price of $4.66.
Source: Tony Mitchell, Chair of New Zealand Shareholders Association (NZSA)
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