ASX will start conducting bookbuilds for listed entity capital raisings from 8 October 2013. The new facility will allow a bookbuild for an equity placement to be conducted on-market using ASX trading infrastructure.
Operation of the Scheme
In brief, the new scheme operates as follows:
Issuer appoints a lead manager: A listed entity (issuer) will apply to ASX to use ASX BookBuild for all or part of its capital raising, nominating an ASX Trading Participant as lead manager to run the process.
Set bookbuild parameters: Certain parameters are set in the ASX BookBuild program about acceptable bids. The potential parameters include the opening price, the proposed raising amount, the allocation to priority bidders and the minimum close price.
Announcement of offer: The issuer must announce to ASX the offer and certain public parameters such as the opening and closing dates and whether retail investors are eligible to participate.
Priority bids phase: The nominated lead manager will collect "priority bids" for up to 100% of the shares being issued. Priority bids are bids that receive a priority in the allocation stages provided they are at or above the final bookbuild price.
On-market phase: The BookBuild facility then goes "live" and other parties (through their brokers) can bid for the shares on market. At this stage, priority bidders are able to reassess their bid price to take into account the on-market changes to the price.
Book is closed: Once the issuer is satisfied with the issue price, the nominated lead manager advises ASX to close the bookbuild, allocations are made to priority bidders and then the remaining bidders based on bid price, and the placement is settled via DvP settlement.
This on-market process would determine both the final price at which the issuer offers shares and who receives allocations, subject to the parameters set by the issuer. As a result, ASX BookBuild is intended to operate more as an auction than a traditional bookbuild process in which the issuer and the lead managers can exercise broad discretion on pricing and allocations.
Access and costs
ASX BookBuild is available to all ASX-listed entities. The costs of accessing the system are scaled based on the size of the capital raising and whether a price improvement is achieved or the minimum amount to be raised is exceeded.
All capital raisings will attract a fixed charge of $25,000. Where a price improvement or a greater than minimum raising amount is achieved, a scale applies. The maximum fee under the scale is for a raising of more than $450 million which may attract a fee of up to $1,997,500 plus 0.15 per cent on any amount over $450 million.
It is yet to be seen what effect this may have on the pricing structures of lead managers where ASX BookBuild is engaged to conduct the bookbuild. We anticipate that lead managers will still undertake an important role in underwriting issues, marketing issues, obtaining commitments from priority bidders and advising issuers on the bookbuild parameters and allocations.
Implications for Boards
ASX BookBuild may appeal to smaller issuers whose capital raisings are not underwritten or who are reluctant to give lead managers the pricing and allocation discretion that may apply in traditional bookbuilds.
Although ASX BookBuild seeks to obtain the best price, which on its face would seem in the best interests of the company, it is often the case that pricing and allocations in bookbuilds have a strategic purpose beyond simple pricing, such as achieving a more balanced mix of investors on the register or avoiding allocations to investors who may not be perceived to be supportive of the company in the long term.
It is also yet to be seen whether such a transparent bookbuild process may have unintended effects on trading in the company's shares in the placement aftermarket or amongst hedge funds
Boards considering a placement will need to balance the benefits of the ASX BookBuild system against a more traditional placement structure to assess what is in the best interests of the entity in the prevailing circumstances of its need for capital.
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.
