What are the reasons for pricing the shares in a rights/placement?Pricing Rights issue: - Prevailing stock market conditions.- Expected stock market conditions for duration of the rights issue.- Discount given for rights issue of comparable companies at the time of the announcement of rights issue. Better the discount, more people will buy the issue. Share placement: - Prevailing stock market conditions at the time of the share placement. - Upside potential of the listed Co as perceived by the investors.- Discount given relative to other placement shares by other Co's at the time of the placement exercise.- Pricing of shares are still subjected to the forces of demand and supply.
What are the reasons for using Placement or rights issue instead of the other?Use of placement : - Stock market conditions are not bullish and the demand for IPO are uncertain.- Or stock market conditions may be favourable but not expected to last throughout the life of a Rights issue.- Name of listing company may not be well-known, further uncertainty in demand.- If funding requirements are not so large that a Rights issue is needed, then placement would be enough.- Controlling shareholders are willing to dilute their shareholdings- Quick and expenses are low. This is due to simple documentation as placees already have the knowledge and expertise require to take part in this placement. - Main document, the offering memorandum requires less information than abridged prospectus.- As placement discounts are generally lower than Rights issue discounts, the issue price is higher and thus less shares need to be issued for the same amount of funds required.- Lighten the dividend servicing burden.Use of Rights issue: - Funding requirements are larger than the 20% limit for new share issuance under the Share Issue Mandate. - Prevent dilution of the existing shareholders of the Co.
What are the 3 Mainboard listing manual Quantitative criteria? QC Rule 210(2)(a):- Listing of traditional established businesses.- Consolidated pre-tax profit of at least $30million for latest and fully audited financial year prior to the IPO application.- Operating track record of at least 3 years.- Track record must be achieved by substantially same management, with the company is substantially same business.QC Rule 210(2)(b):- Listing of businesses that have committed a lot of money in projects and have just stated being profitable.- Profitable in latest financial year, pre-tax full year consolidated audited accounts- Operating track record of at least 3 years.- Track record must be achieved by substantially same management, with the company is substantially same business.- Market capitalisation >= $150m (issue price x post-invt share capital)QC Rule 210(2)(c):- Listing of businesses that have committed a lot of money in projects that take a long time to profit. (life science, biotech.)- Must achieve operating revenue in latest completed financial year, actual or pro forma (projected)- Must have future prospect, commercialisation of products.- Market capitalisation >= $300m
Alternative sources of funding BEFORE and AFTER IPO without bank loans?After IPO:- Share placement can be done. - However number of shares issued cannot exceed 20% of the Co's issued share capital. This is authorised under the General Share Issue Mandate (in any 12 months) given to the directors by shareholders.- Shareholders give directors that power to allow them to take advantage of favourable stock market conditions to raise funds with the least amount of time and expenses.
Advantages and disadvantages of successful IPO?Advantages:- Raise the business profile, publicity.- Raise funds for expansion- Raise funds without help of bank, reduce gearing ratio.- Establish overseas presence- Directors and controlling shareholders can be released from joint and several liability or guarantee. Disadvantages:- Time consuming (6-9 months)- Time and expenses incurred to meet listing requirements- Occasional loss of business- Transparent due to disclosure requirement. - Requires regular audits from 3rd party agent.- Can be sued in its own name
Voluntary and Mandatory offer? 1) A voluntary offer:- Made by a person that is not an existing shareholder of the target company.- Any form of consideration to the target Co's shareholders are allowed. - Not need for arrangement of underwriter. 2) Mandatory offer:- Made by offeror who has already purchased shares in the target company either by private treaty or the stock market.- Any such acquisition that triggers Rule 14 of the Takeover CODE, will require a General Offer(GO) to be made to the shareholders of the target company.- A GO must be made for any class of shares in the company that carries voting rights that is not already held the offeror & his concert parties. The offer must be in cash or cash alternative. The offer must be made at no less than the highest price paid by offeror & CP for any shares during the offer period and within 6 months prior to the commencement of the offer. - Cash alternative can be in the form of the offeror's company shares. The offeror can also arranges for an underwriter to pay cash to whichever shareholder that wishes to "sell out".
Why would a company go public entirely by way or offer for sale of existing shares?- It is when the company is cash rich and does not require additional funds.- After the issue, the vendor shareholders still hold a substantial shareholding in the company.- Increase the confidence of the public in the company as the existing shareholders still feel that the company has further potential by staying.
Why are Rights issues only offered to existing shareholders first?- Company is giving them a chance to maintain their % shareholding - Give them the benefit of favourable terms of the issuance of new shares.
TEP = Payment / no. of sharesDiscount from rights price (%) = 100(TEP - rights price) / TEP
Methods to deter unwanted Takeover bids?- Keep share prices up- Cultivate good market image- Maintain stead profit and dividend record.- Monitor shareholder's registers to check for share accumulation.- Monitor stock market activities for unusual share price movements- Increase size and complexity of business to make it expensive for other businesses to buy, assess value or understand the structure of the business and its shareholdings.- Create defensive shareholdings by signing agreements with the shareholders. (Shareholder's agreement, Allied shareholding, cross-shareholding.Other tactics:- Releasing of new or unexpected positive news to the public such as an upward revision of profit forecast, revaluation of undervalued assets, development plans. This is to increase the confidence the shareholders have in the company and price of the share may go up. This makes it harder for the offeror to buy over the shares.- Question and attack the terms and motives of the offer. Price of the offer is a "rip-off" and not the actual worth of the shares.
Rule 14 or the Merger and Takevover code? Mandatory offer is necessary if a person and his CP:-* CP can be individual or company** Effective control: >= 30% voting rightsThreshold:- Owns less than 30% of the target company's shares,- Further acquires 30% or more of the sharesCreep Rule:- Owns between 30%-50% of voting rights,- Further acquires MORE THAN 1% of the target company's voting rights in any period of 6 months.,
Conditional or unconditional?'1) A conditional offer is when the offeror and his CP must at the end of the offer period achieve more than 50% of the voting rights of the target company. This includes the offeror and his CP purchasing of shares and receiving acceptances. If this is not achieved, all acceptances will be void.2) An offer is considered unconditional if the offeror and his CP already owns 50% + 1 share of the target company's shareholding before making the offer.
NTA per share =Net shareholder's funds / no. shares
Forecast net EPSForecast NPAT / WASC no. shares
Forecast PERIssue price or current price / Forecast EPS
How does a holding company work?Working Albert Soo 30 / 59 x 51 = 25.93 % shareholding transferred to AB Holdings 30 – 25.93 = 4.07% … balance of HRC shareholding in own name Bobby Soo 29 / 59 x 51 = 25.07 % shareholding transferred to AB Holdings 29 – 25.07 = 3.93% … balance of HRC shareholding in own name