What are the various disclosure documents used in fund raisings?
- Prospectus
- Short form prospectus (for retail investors)
- Profile statement (used for securities issued by selected industries e.g. Managed investments industry)
- Offer information statement (raisings up to $5m)
In what circumstances would a raising be exempt from preparing disclosure statements?
If approved by ASIC, and the fund raising is relatively small (securities of $10m or less)
-Preparation cost for an offer information statement is significantly less than a prospectus (extensive due diligence not required)
Discuss the key content of disclosure documents (prospectus)
- Must contain all information that investors and their investment advisors normally require to make an informed assessment.
- Normally includes: DESCRIPTION of business (structure, plans); financial INFO; RISKS; use of PROCEEDS; BACKGROUND of senior managers; DIVIDEND policy; major SHAREHOLDERS; TAX; LITIGATION
- Must be worded in clear and concise manner, not be misleading/deceptive
Discuss due diligence
- A due diligence committee is formed, comprising directors, management, underwriters, professionals
- To coordinate, review and ultimately report to the Board’
- Seek sign offs from lawyers, management and accountants
- High cost, long delay (coordination of everyone)
Fund-raising techniques: Entitlement issues
- Made to existing SHs
- Can be renounceable (which means “right” can be to the security can be sold into the market). As shares will be sold at a discount to market, the right has value
- Time period between purchase of right and payment of share provides for trading opportunity which may raise the share price
- Some are non-renounceable (no transfer of entitlements)
Fund-raising techniques: Share repurchase plan
Some compensation for institutional private placements
-Issued at discount to market, with maximum annual amount of $15 000
Fund-raising techniques: Private placements
- Quick: 24/48 hours
- discount to market with clients/contacts of IB on best endeavours basis
- due to non pro-rata nature, limited to no more than 15% of issued capital within 12 months
- can dilute interests of non-involved shareholders
Fund-raising techniques: DRP
- Dividend entitlement is reinvested within the company in the form of new shares
- shares are frequently issued at discount to market price
- closely allied to dividend imputation: companies can be increased dividend which is fully franked, without utilising more cash flow. However can distort optimum debt/equity ratio
What forms of offer do not require detailed disclosure?
- General disclosure test for prospectuses of listed companies is not as stringent as general disclosure test for unlisted companies as they are subject to constant disclosure
- Small scale offerings within 12month period: limited to personal offers; private arrangements; max 20 investors with $2m ceiling
- Sophisticated investors: large offers of at least $500 000; wealthy investors gross income of $250kl experienced investors - licensed dealer; professional investors - financial services licensee or body regulated by ASIC
What forms of offer do not require detailed disclosure? (2)
- Executive officers: spouses, parents, children and directors
- Existing security holders: if offers of fully paid shares under a DRP
- Rights issue
What is the purpose and prescribed minimum content of a prospectus?
Must contain all information that investors and their advisors would both reasonably require and expect to make an informed decision:
- rights and liabilities attached to securities
- assets, liabilities, financial performance and prospects
- terms and conditions: minimum subscription level
- fees relating to offer
- details of planned quotation of securities: investors will seek availability of secondary market trading
Differentiate between IPOs and SEOs
IPO: first listing on a public exchange (e.g. Telstra 1)
SEO: seasoned equity offering: a listed company makes a fresh issue to raise new funds (e.g. Telstra 2 and 3)
