Commonwealth Bank (CBA) shares will remain suspended after its retail entitlement offer suffered a 50% shortfall, or $1.4 billion as its $5.1 billion capital raising missed its first mark. The bank believes the follow up issue will be filled to allow trading in the bank’s shares to resume later today.
The suspension will allow the bank and its advisers to run a retail bookbuild to fill the remaining $1.5 billion.
“CBA has decided to exercise its discretion to bring forward the commencement of the retail bookbuild by one day after considering market conditions,” the bank said on Friday. That will mean institutions and the underwriters will have put up the lion’s share of the huge issue, instead a large minority portion.
The question now for bank investors large and small (and bank managements and boards) is whether the shortfall is a one off, or does it mark the end of the love affair Australian retail investors have had with the big four banks as safe havens for investing.
Retail investors, including self-managed super funds, are collectively the largest shareholding group in the big banks.
If they feel they have had their fill of bank shares (The recent Westpac issue of hybrids has not gone down well with some investors and advisers who feel it was hyped and over egged as an investment), then the market in bank shares could be badly hit.
That’s important because the banks account for around 30% of the value of the ASX 200 and are the big drivers of rises and falls.
The shortfall was both a surprise in that the shortfall was so large, and not a shock, that there was a shortfall, given the market volatility in recent weeks, especially at times in the closing week or the entitlement issue.
The total capital raising is fully-underwritten, meaning the full $5.1 billion will be raised.
“The retail entitlement offer attracted strong support from shareholders despite the volatile equity markets experienced through the offer period,” the bank said in a statement on Friday.
The recent sharp falls in bank shares has eroded support for the retail entitlement, with CBA’s share price this week dipped below the $71.50 a share price it was offering to retail shareholders.
When CBA launched its raising on August 12, its most recent share price was $82.12. But in the four weeks since, the shares hit a low of $71.13 in the first days of this month, and ended at $75.13 on Friday afternoon.
Not even the rebound in the share price last week was enough to boost the retail take up by Friday to close to 100%.
The $5.1 billion raising is part of the bank’s plans to boost its capital to meet the new, higher requirement insisted on by regulators by mid-2016.
