Home' InDaily : October 9th 2009 Contents October 9 - 15, 2009
The Australian Securities
Exchange is considering
clamping down on rules
surrounding capital raisings.
The rules enable investors
to exploit a loophole during
heavily discounted rights issues
that often deliver windfall gains
at the expense of long-term
The push is part of a broader
ASX review into procedures
surrounding capital raisings
after Australian companies
tapped shareholders for a record
$90 billion over financial year
While the new funds have
allowed companies to bolster
their balance sheets in the
face of the economic turmoil,
concerns have spread that
the structure of many of the
raisings has benefited large
institutional shareholders at
the expense of smaller retail
This has been through retail
investors having their existing
shareholdings diluted or in some
cases being shut out from new
“Boards must realise the
importance of retail sharehold-
ers; it seems to us at the moment
that it is the right way to go to
ensure there is adequate protec-
tion for the retail shareholders,’’
said ASX chairman David
Of key interest is a process
used by companies ranging
from Asciano to Wesfarmers
that offers a window of several
days between announcing a
rights issue and the cut-off for
shareholders to qualify.
This allows new shareholders
to take advantage of discounted
capital raisings mostly at the
expense of longer-term inves-
tors. Building-materials interest
Brickworks had a deluge of
new investors after it announced
details of a share purchase
plan late last month, but gave five
days for shareholders to qualify.
This allowed new investors to
move on to the registry, entitling
them to buy hundreds of new
shares often at a 7.5 per cent
discount to existing prices.
But Brickworks had to
close the window earlier than
expected when its shareholder
base ballooned from just over
3000 to more than 10,000. The
increased base is expected to
result in longer-term investors
having their application reduced
when shares are allotted early
Others that have left a
window open on rights issues
and have experienced a jump in
shareholder numbers include
Wesfarmers, which added more
than 30,000 in a short period
following its $1.7 billion retail
capital raising this year.
On the smaller end, Macarthur
Coal’s investors swelled by more
than a third in the few days
when it outlined details of its
$62 million share purchase plan
However, Mr Gonski cautioned
against becoming too prescrip-
tive when it came to capital
raisings, saying there should be
enough flex ibility for companies
to move quickly to secure fresh
“The retail shareholder
should be given a fair go, but if
it’s a question of that or going
broke because you haven’t got
capital, one would assume the
requirement to get the money
pervades,’’ Mr Gonski said.
Five directors have resigned from Great Southern
Ltd, almost five months after the agribusiness
appointed voluntary administrators.
Non-executive directors David Griffiths,
John Young, Alice McCleary, Peter Mansell and
Mervyn Peacock have stood down, effective
September 30. The directors held almost 50
million shares between them, the bulk of
them – almost 49.6 million – held by Mr Young,
according to a final director’s interest notice.
Mr Griffiths held 130,000 shares, Ms McCleary
more than 43,000, Mr Mansell almost 55,000 and
Mr Peacock almost 11,000.
The ASX filing follows comments from receiver
McGrathNicol that there has been strong interest
from prospective buyers in the group’s pulpwood
timber schemes, but many of the horticulture
schemes were likely to be wound up.
One of the companies eyeing certain forestry
managed investment schemes (MIS) is timber
group Gunns Ltd.
Great Southern – which packaged, promoted
and managed investments in timber plantations
– appointed voluntary administrators in May,
after the group’s banks declined to continue to
support its restructure.
The company’s lead bankers – ANZ Banking
Group, Commonwealth Bank of Australia,
Bankwest and Japanese bank Mizuho – refused
a request for an additional $35 million on the
grounds that the company was unlikely to
survive as a going concern.
The four banks are owed $376 million by Great
Southern, with ANZ – the lead member of two
syndicates – believed to be owed $220 million.
McGrathNicol has also called for expressions
of interest from third parties to acquire all or
part of the business of Great Southern; the
land owned by Great Southern entities; and
other assets of Great Southern, including assets
associated with Great Southern’s managed
The receivers have likewise called for
expressions of interest from parties that want to
replace Great Southern Managers Australia as
the RE for all, or some, of the MIS, in combina-
tion with the sales process, or separately.
Comment by Robert Gottliebsen
I recently had the pleasure of dining in Adelaide
where, thanks to wine commentator Jeremy
Oliver, I came to understand the sheer horror of
what is happening to the South Australian wine
It was not long ago that the SA wine industry
was one of our best export success stories. Vast
acreages of grapes were planted by existing
growers and tax driven city farmers.
Now, in the US, our mid-range wines are on
the nose because of the success of the low-priced
Yellowtail brand and a series of Yellowtail
imitations which have destroyed the Australian
image for all but the most expensive wines.
The mid-priced South Australian wines have
been hit hard and most are not selling well.
The other key wine export market, the UK, sees
Australian wines again pushed into the cheap
bracket by the enormous power of the super-
markets. It is extremely difficult for mid-priced
Australian wines in the UK to gain profitable sell-
ing contracts with the supermarkets. Whereas
a few years ago Australian wines received rave
reviews, now they are being ridiculed.
Once that situation is reached it is very hard to
reverse. Oliver estimates that South Australian
grape production is about 25 per cent above
requirements. Wineries are shutting and there is
a pressure from those that used tax
incentives to plant vines
to be given incentives to dig them up.
The vast uncovered irrigations channels in
NSW are taking water from the Murray and
the same applies to Victoria except that many
Victorian channels are now covered, saving up to
90 per cent of the water. But the lower amounts
of water downstream are increasing salinity in a
number of SA wine areas
Creek. To date they
have been able to
manage, but in five
years’ time, if the
higher saline trend
will be extreme
And of course the
dollar does not help.
that in the longer
term China will be
the new market. He
says that the French
have captured Chinese
wine drinkers who are aged
over 30 but there is a rising
affluent group of Chinese in
their 20s who are taking well to
Australian wine. The market is
small but growing rapidly. Oliver
sees this China market as the
only hope for the Australian wine
export industry – assuming South
Australia can overcome the
salinity problems and reverse
the effects of neglect
and poor marketing.
The glass is running dry
must realise the
importance of retail
ASX chairman David Gonski.
ing well to
et as the
In last week’s CBD section a photo of a Hercules
aircraft was incorrectly captioned as an Orion.
GRAINCORP LIMITED (GNC)
GrainCorp has entered into an agreement to acquire
United Malt Holdings (UMH) for $757 million, to be
funded by an institutional placement and entitlement
offer at $5.65 representing a 32.7% discount to the
last traded price prior to the announcement. FY09
NPAT guidance was also upgraded to $60 – 63 million
from $53 – 63 million previously.
The acquisition price represents 5.7 times historic
earnings on an EV/EBITDA basis and in our view
represents a fair price without being a bargain. It is
worth noting that the business has been bought from
private equity and there is lack of earnings clarity.
While UMH is not the highest quality business with
aged plants and the potential for volatile earnings, it
should provide a more stable earnings stream than the
Company’s core storage and handling business. We
recommend investors take up their entitlements.
Sharebrokers and Investment Advisers
Telephone (08) 8217 3900
Warning (General advice only): Past performance is not a reliable
indicator of future performance. The recommendation in this
advertisement is made without reference to its appropriateness to
your investment objectives, financial situation and particular needs.
Before acting on this general advice, you should discuss with your
investment adviser the appropriateness of this recommendation to
your own specific circumstances.
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