The ASX BookBuild facility solves the problem of the fact that IPOs and placements, under usual procedures, are not available to every potential investor.
One of the great changes to the investment landscape over the last 20 years has been the way in which technology blew away the monopoly of expensive full-service stockbrokers, and allowed retail investors to get unprecedented cheap access to trading in stocks.
Now a similar thing is happening in the “other” stock market – the “primary” market, where companies raise capital.
The new ASX BookBuild facility, launched in October 2013, combines the wide-open accessibility of the “secondary” stock market – that is, buying and selling shares on the ASX – with a far more efficient method for companies to raise equity, whether through an initial public offering (IPO) on the stock market or a subsequent share placement.
In its first 12 months of operation, the ASX BookBuild facility has handled six raisings – two IPOs and four placements – worth about $106 million in total.
Just as it does for the secondary market, the ASX now provides a venue for the primary market.
Companies raising capital have traditionally used an underwriter – who agrees to take any shares it cannot sell to investors – or a lead-manager firm, which markets the issue to other investment banks/brokers and conducts a book-build. It’s a lucrative business for brokers and investment banks, but it carries the risk of being left with stock if the issue underwhelms the market. But the ASX BookBuild facility opens up much wider potential distribution, and in particular, provides a conduit through which companies wanting to raise capital can potentially tap into the burgeoning $560 billion self-managed super fund (SMSF) sector.
“The ASX BookBuild facility has been specifically designed to complement the distribution abilities of the brokers and investment banks, but allow the companies to reach as wide an audience of potential investors as possible,” says Tim Eisenhauer, managing director of On-Market BookBuilds, which created the intellectual property for the ASX BookBuild facility.
“The key part of it is that the issuer still has the opportunity to put, say, 50%–75% of the issue to their lead manager broker, which is usually their main adviser, but also, to market the rest of the shares, through the ASX BookBuild platform, to every broker in Australia, and their clients.”
Eisenhauer says there are about 220,000 “sophisticated investors” in the Australian market (the Corporations Act defines sophisticated investors as holding net assets of $2.5 million or earning at least $250,000 for two years), and more than half a million SMSFs. “That is the audience that companies raising capital want to reach. But under the existing model, only the lead managers and brokers they had sub-contracted in would have offered the stock to their clients, so the company might have had access to only 5%–10% of the potential investors. Through ASX BookBuild, companies can go out to the 100% of eligible investors.”
The ASX BookBuild facility solves the problem of the fact that IPOs and placements, under usual procedures, are not available to every potential investor. (Under the Corporations Act, share placements – which are considered ‘undocumented’ offers – are only open to sophisticated investors.) Even engaged investors face the problem that are either too small to warrant a call from the institutional broker trying to raise the capital – but, paradoxically, their holdings may be too big to warrant participating in follow-on share purchase plans (SPP) that directors launch to include small investors. These share purchase plans limit individual investors to $15,000 worth of shares in a 12-month period, and can be scaled back.
"“The equity is not getting to all the
investors that want to take it, and that’s
one of the main tasks that the ASX
Bookbuild facility can fulfil.”
On-Market BookBuilds MD, Tim Eisenhauer
Many shareholders find themselves in limbo – they are being diluted, without being invited to participate in the issue that is diluting them. Under the ASX BookBuild facility , they can now participate. For companies raising capital, the beauty of the ASX BookBuild facility is widening the reach and potential participation of their raising.
To get access to the ASX BookBuild facility, investors need to have a relationship with a broker – same as for the ASX in general. They must sign a one-off agreement with their broking firm, known as an ASX BookBuild Client Agreement. On-Market BookBuilds, on behalf of the ASX, runs an email notification service, through which investors subscribe to ASX BookBuild Alerts, and are notified by email when a transaction goes ‘live.’
Once investors have signed and lodged the Client Agreement, they can bid, through their broker, into the ASX BookBuild facility. The broker can enter, amend and cancel bids for stock in a ‘live’ transaction on the investor’s behalf. Every participant gets to see the live price, and can adjust their bids to make sure they are at or above it. If an offer is over-subscribed, bids at or above the final book-build price will receive an allocation – but every bidder pays the same final price for the new shares.
Eisenhauer says that in the last year, of IPOs greater than $400 million in size, only 16% of the capital has been offered to retail investors. “The equity is not getting to all the investors that want to take it, and that’s one of the main tasks that the ASX BookBuild facility can fulfil.”
For more information on On-Market Bookbuilds and to sign up for ASX Bookbuild Alerts visit – www.onmarketbookbuilds.com.
