Bank of Queensland's small investors might have been short-sheeted by the terms of the bank's $450 million capital-raising, but they are hardly likely to complain much after the shares bolted ahead when they resumed trading yesterday.
The issue's bleary-eyed underwriters at Citigroup wrapped up the institutional component of the raising yesterday, allowing the shares to be relisted for the first time since last week.
Insider was (once again) proved wrong about the conditions being ripe for short-covering because BoQ's issue was priced at $6.05 and it closed last week at $7.30 a share.
Instead, the shares leapt to a high of $7.74, before closing slightly easier at $7.65 - but still a whopping 26 per cent premium to the price being paid for new stock. The smell of burning shorts must have been strong, given that BoQ shares have not touched those levels since early December.
Technically, BoQ shares finished up 57.22? on the day - the outcome of adjusting for the slightly silly rights ratio of eight new shares for every 37 held, giving a theoretical value of shares post-issue of $7.08.
Queries were rightly raised after the issue was unveiled this week about the dilutive effect on non-professional investors of making the issue "non-renounceable", which means that if you decided not to take up your entitlement to the new shares, they evaporate from your hands and reappear in the control of the underwriters, who then find investors willing to pay for them.
Had it been a renounceable issue - a scarce animal in a world where many equity issues are now "accelerated" to ensure the cash is quickly raised and banked - BoQ shareholders could have been selling their rights for about $1.02 each.
Instead, they now have shares that are worth more than before the issue was announced, and a market that seems to be clearly indicating faith in BoQ's new chief Stuart Grimshaw and his gameplan - which likely means their bank managers will happily lend for the retail component of the issue.
John McLean of Citigroup Global Markets, between bedding down BoQ and finalising Tuesday's Beach Energy raising, told Insider the appetite for financial stocks that are well-capitalised was growing - nobly mentioning QBE's similarly sized, and quickly absorbed, capital-raising at the end of February that was run by Macquarie Group.
THIS MEANS WAR
Fresh from (narrowly) defeating the shareholder ginger group that tried to depose its chairman, Harry Boon, it appears that PaperlinX is tiring of critics.
Insider was yesterday one of the privileged few to be copied in on a written response from the chief executive of PaperlinX, Toby Marchant, to Graham Critchley, a grumpy hybrids investor and author of the paperlinx-sux website, that looked awfully like the prelude to a lawyers' letter.
PaperlinX filed a shot across the website's bows last year when the campaign to change the board was beginning, sending what the legal trade calls a "concerns" notice - essentially the first step in launching defamation proceedings.
Marchant's latest letter asks for "retraction and apology" over the content of an email from Critchley that contained an anonymous tip, rather than something actually published on his website. The inclusion of journalists, would-be executive director Andrew Price and his supporters as recipients of the email appear to be what worried PaperlinX.
Insider did note, though, that in Marchant's response he included a sentence that may not have been the smartest in the context of a shareholder campaign over collapsed value and alleged corporate excess:
"The restructuring in the UK has led to a number of senior people leaving the business, all of whom were treated with respect and offered severance packages well above the legal requirement," Marchant wrote.
Insider understands that what Marchant was trying to say was that the company made sure that those it pushed out the door, it treated fairly, and that "whistle-blowers" have little to complain about in a financial sense.
Insider reckons that Marchant ought to keep his focus on trying to turn around a waterlogged ship. Since the shareholder vote last Friday, the stock has fallen to 9.4? - which vindicates those sellers behind the 15 million shares flogged last Friday, mostly through CommSec, at prices of up to 12?.
Even Schroders Investments, which swung behind Boon after what Insider hears was a well-placed phone call from a director, Michael McConnell, might rethink its attitude if things do not improve.
PaperlinX received a tentative 9? a share proposal for the company last December. That is starting to look good, the way things are going.
It reminded Insider of now departed chairman David Meiklejohn's comments after the 2010 annual meeting, where he talked about the removal of previous chief executive Tom Park as "he would have liked to stay on a bit longer and been part of the upswing, but he understood the situation".
Some upswing. The shares were about 45? then and have not been above 20? in almost a year.
NOT PICKY
Woolworths and the Ackerman family's Pick n Pay group are doing their best to deflate an off-the-shelf story doing the rounds that the Australian group might buy into its South African cousin.
Reports started appearing in the South African media that representatives of Woolies and/or a Dutch retail house had been in town and were talking with Pick n Pay about taking shares, but both retail groups last night dead-batted Insider's inquiries.
Woolies was similarly disinclined to engage - using remarkably similar phrases about frequently meeting with other global retailers to talk on a number of issues.
Frequently Asked Questions about this Article…
What happened to Bank of Queensland (BoQ) shares after its $450 million capital raising?
After the institutional part of BoQ's $450 million capital raising was wrapped up by underwriters, the shares jumped when they resumed trading. The issue had been priced at $6.05, the stock had closed pre-issue at $7.30, reached an intraday high of $7.74 and closed at $7.65 — about a 26% premium to the new-stock price.
Why did BoQ shares leap above the issue price — was short-covering involved?
The sharp move looked like short-covering and a rush of demand: the market was trading the stock at a significant premium to the $6.05 issue price, and commentary in the article suggests investors showed renewed faith in new chief Stuart Grimshaw and in well-capitalised financial stocks. Underwriters completing the institutional book and expectations that bank managers would support the retail portion also helped the rebound.
What is a non-renounceable rights issue and how did it affect small investors in the BoQ raising?
A non-renounceable rights issue means entitlements that shareholders don't take up simply lapse rather than being tradable. For BoQ, that raised concerns because if retail investors didn’t exercise their rights they evaporated and were taken up by underwriters instead, creating potential dilution for small holders who couldn’t sell their rights in the market.
How did the BoQ rights ratio work and what was the theoretical post-issue share value?
BoQ’s rights ratio was eight new shares for every 37 held. After adjusting for that ratio the article gives a theoretical post-issue share value of about $7.08. The piece also notes that, technically, the shares were up around 57.22% on the day once that adjustment is applied.
Who underwrote the BoQ raising and what does that mean for investors?
Citigroup acted as the underwriter for the institutional component of the raising. Underwriters commit to buy any shares not taken up by shareholders or retail investors, which helps ensure the company raises the intended capital but can mean underwriters reallocate unused entitlements rather than shareholders getting value from tradable rights.
What does the market’s positive reaction to BoQ’s raise mean for everyday investors?
A strong market reaction suggests renewed investor confidence in BoQ’s management and capital position, and it can reduce short-term dilution pain for existing holders. However, it’s a market signal rather than a guarantee of long-term performance — investors should still consider fundamentals, strategy under the new CEO and how the retail component is handled.
What’s the situation with PaperlinX and why might it matter to shareholders?
PaperlinX recently faced a shareholder campaign that narrowly failed to remove its chairman, Harry Boon. CEO Toby Marchant sent a letter to a critic asking for retraction and apology over an emailed tip, and the company has previously issued a legal 'concerns' notice during the campaign. The stock fell after the vote, so shareholders should watch for management’s turnaround plan, any legal developments and progress on restructuring.
Are Woolworths and South Africa’s Pick n Pay in takeover talks?
Media reports suggested representatives of Woolworths or a Dutch retail house had been meeting with Pick n Pay, but both Woolworths and the Ackerman family’s Pick n Pay group denied the takeover rumours and declined to engage on the story, saying they frequently meet global retailers about various matters.
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