Equity Placements, Open Offers and Rights Issues

What is Placing?

An issue of shares that is not offered solely to existing shareholders, sometimes also referred to as a placement, a follow-on offering or a capital increase.

What are the advantages of placing?

• Speed of execution and therefore low market risk
• Low cost due to the short timetable and a more limited marketing process
• Reduced documentation requirements due to less onerous listing authority requirements
• Simple structure
• Usually do not require shareholder approval
• Flexibility of allocation

What are the disadvantages of placing?

• Dilutive to existing shareholders who do not participate
• Short timetable makes it difficult to carry out extensive marketing
• There is no transaction certainty as it is not usually underwritten

What is known as a conditional placing?

When a company wishes to undertake a placing which is larger than the non-pre-emptive threshold. It will need to seek shareholder approval to carry out such a placing.

What is an Open Offer?

It is an offer of shares solely to existing shareholders at a fixed subscription price. Open offers are almost always combined with a placing. The effect of this is that in the event that the open offer does not achieve full take-up, the places in the conditional placing will take up the shortfall. Another reason for combining a placing with an open offer is to give existing retail shareholders more time to be able to participate.

What are the advantages of Placing and Open Offers?

• Flexibility of allocation
• Reasonable certainty of funds provided by the conditional placing element
• Fairly quick process
• The 10-day subscription period allows more extensive marketing

What are the disadvantages of Placing and Open Offers?

• Not fully preemptive
• More complex than a straight placing
• A listing prospectus will be required
• Size and discount restrictions can restrict flexibility
• May require shareholder approval
• Involve increased process, cost and timetable compared to a non-pre-emptive placement

What is a Rights Issue, and when are they required?

A rights issue is an offer of shares made via the issue of rights to subscribe for the new shares to existing shareholders. They are required:

• For larger capital raises
• Where the company needs certainty of funds via underwriting

What are the advantages of Placing and Open Offers?

• Certainty of funds
• Fully pre-emptive
• Existing shareholders are incentivised and rewarded through their tradable rights
• No size or discount restrictions
• Longer timetable allows extensive marketing

What are the disadvantages of Placing and Open Offers?

• Limited or no flexibility of allocation
• Quite complex transactions
• A listing prospectus will be required
• Negative perception of a deep discount
• Greater market risk
• May require shareholder approval
• Highest cost and process