By Alice Uribe
SYDNEY--A rush by Australian companies to take advantage of looser capital-raising rules designed to help ward off financial trouble is raising concern that some are building war chests at the expense of shareholders.
More than 15 billion Australian dollars (US$9.8 billion) of equity has been raised by ASX-listed companies since March 18 when the coronavirus pandemic triggered harsher restrictions, Macquarie estimates. Raisings have gathered pace since the Australian Securities Exchange and Australian Securities and Investment Commission issued a range of temporary capital raising relief measures at the end of that month.
Among the more controversial measures was an increase in the proportion of new shares that could be placed with institutional investors to 25%, from 15%, as long as a company also launched a share purchase plan or an entitlement offer to ensure all shareholders could participate.
The rule change has allowed companies to raise more money amid an uncertain outlook for revenue. But it has also heightened concerns that some shareholders--particularly retail or excluded institutional shareholders--could see their holdings diluted a lot. The measures have also paved the way for some companies to shore up balance sheets in the event of a longer market downturn, or bolster reserves for future investment.
Macquarie analyzed recent deals and found that nearly half were companies seeking to improve liquidity. The next most popular reason for raising money was to repay debt. Only seven companies had rattled the tin with investors to fund investments, and most often in the technology sector.
Jonathan Armitage, chief investment officer at National Australia Bank Ltd.'s wealth management unit MLC, said some companies with strong balance sheets were acting opportunistically.
"It's not just companies which have got some challenges at the moment" as some were noticeably acting to bullet-proof their balance sheets if the crisis worsened and lasted longer, he said.
"They see that there will be an opportunity down the track to take advantage of dislocation," he said. "Sometimes there are benefits of raising capital early in the cycle."
On Monday, National Australia Bank Ltd. said it would raise up to A$3.5 billion to bolster its capital buffers amid an uncertain economic outlook. Lendlease Group cited uncertainty as an engine for its own A$1.15 billion raising.
At the other end of the spectrum, Flight Centre Travel Group Ltd. and Webjet Ltd. have conducted emergency raisings to cover a collapse in revenue caused by travel restrictions.
Not every company is in distress. Shopping Centres Australasia Property Group chief executive Anthony Mellowes said its up to A$300 million raising gives it firepower to snap up distressed retail assets later. Some analysts speculated that Ramsay Health Care Ltd.'s up to A$1.4 billion raising not only safeguards its balance sheet from lost revenue from elective surgery, but positions it to buy hospitals in Europe when the pandemic ends.
Dean Paatsch, director of shareholder proxy advisor Ownership Matters, questioned whether it was appropriate for companies to use the ASX and ASIC's emergency measures to amass dry powder.
Data center operator NextDC "went the full 25%" in raising A$672 million when it wasn't under pressure, said Mr. Paatsch. The company said it would use the funds to pursue growth, including the proposed development of a new data center in Sydney.
"If you're just raising the money for growth purposes, then there is no reason to go beyond the existing 15% rule," Mr. Paatsch said.
According to Macquarie, eight companies have issued 15-25% more shares since the end of March. Another seven deals, including Flight Centre and Webjet, were "supersized deals" where shares in the entitlement offer were used in calculations to determine the size of the placement, it said.
To be sure, NAB, Ramsay Health Care and Shopping Centres Australasia didn't breach the previous 15% placement cap.
"The [emergency provisions] didn't come into our thinking because we raised below 15% because it wasn't a necessary raising. We didn't need to raise anymore than we had raised," said Mr. Mellowes.
Last week, the ASX said companies must provide more information should they wish to take advantage of the relief measures. Previously, companies only needed to say they would rely on this waiver and explain the circumstances in which it is doing so. Now, they must explain in advance whether it's related to Covid-19 or another reason.
Companies must also advise the market of results of the placement, and reasonable details of the approach taken to inform investors to participate and how it determined their respective allocations.
The Australian Shareholders Association, which looks after the interests of independent investors, welcomed the changes, particularly in strengthening guidelines for share purchase plans.
Mr. Paatsch said the ASX appeared to recognize that the changes could have had unexpected outcomes.
"By going up to 25%, you can affect the market for corporate control, so if I place 19.9% to one investor and 5% to another investor, between the two we've got a blocking stake that could prevent a takeover," he said.
Write to Alice Uribe at firstname.lastname@example.org