By Stephen Mayne
At 6.12pm last night, Adelaide-based mining and construction contractor MacMahon Holdings released this statement to the ASX revealing that retail investors had been scaled back in its $60 million capital raising.
After doing a $25 million private placement of shares to big institutional investors, MacMahon couldn't bring itself to allocate any extra shares to its retail investors in the accompanying 1-for-5 entitlement offer at 32 cents.
Amazingly, MacMahon's largest shareholder Leighton Holdings, which had already snapped up 32 million additional shares in the placement and institutional offer, double dipped by applying for even more shares through the retail offer.
Given that Leighton had already been over-allocated stock as evidenced by its stake rising from 17% to 18.56% through the institutional offer, this seems unfair.
MacMahon's scale-back formula restricted retail shareholders who applied for extra shares to just 59% of their entitlement in "overs''.
There was only a $2.8 million retail shortfall to share around and MacMahon has not revealed what proportion was snapped up by Leighton.
Your columnist is a small MacMahon shareholder who was allocated just $8.70 worth of new shares in the offer.
Retail shareholders as a class started this process owning almost 45% of MacMahon but have now been diluted down below 40% courtesy of the institutional placement and special deals for Leighton.
Leighton is hardly an independent broker in all of this. It has a seat on the MacMahon board and has long been close to Macquarie Group, which handled the entire MacMahon raising.
Indeed, Leighton chairman David Mortimer used to have his offices at Macquarie Bank and it was Macquarie that encouraged Leighton to pay that notorious $4.5 million to BrisConnections greenmailer Nicholas Bolton.
MacMahon's actions are the latest in a long line of swifties pulled on retail investors during this record-breaking run of capital raisings.
The Commonwealth Bank, supposedly the nation's biggest fund manager and retail broker through Commsec, completed a $2 institutional billion placement at $26.60 a share last December.
However, it then waited until after a fully franked $1.13 dividend was paid before offering the same deal to its retail investors through a share purchase plan. In other words, the big end of town got a $1.13 discount.
Rio Tinto's $US15.3 billion rights issue made it the first major ASX-listed company in a long while to do a renounceable rights issue which treats all shareholders equally.
The Rio offer is strictly pro-rata and you can't apply for extra shares - something which has been particularly lucrative during the recent Australian raisings. However, if you haven't got the cash or inclination to take up the discounted Rio offer at $28.29 a share, you can sell the rights on the market to someone who does.
If it is good enough for Rio Tinto to let shareholders sell their rights it should be good enough for everyone else.
Indeed, the majority of the $40 billion-plus in capital raisings we've seen so far in 2009 would be illegal in the UK under their fairer and more transparent system which dual-listed Rio Tinto was obliged to follow.
If anything, the situation is getting worse because Asciano's effort yesterday really scraped the bottom of the barrel.
Ironically, the British government will be the biggest beneficiary of the $2 billion Asciano raising because the taxpayer-controlled Royal Bank of Scotland is the biggest lender to the troubled infrastructure giant with loans outstanding estimated to exceed $500 million.
The main problem with the Asciano raising is the size of the placement component. Placements are inherently dubious because it involves a board and under-writer hand-picking who gets discounted stock.
You can be Ivan Milat sitting inside Goulburn prison, Iranian President Mahmoud Ahmadinejad or Warren Buffett - it doesn't matter because if the board gives you the nod, you're in, regardless of whether you already own shares in the company.
There is no transparency around the selection process and the system is wide open to abuse and full of conflicts of interest. Directors won't want to place shares with investors who want them sacked and Asciano's underwriters RBS and UBS have an interest in looking after the directors which have agreed to pay them a $45 million fee.
Australian law doesn't permit a company to place more than 15% of its shares each year without shareholder approval and that is why Asciano shareholders will gather to vote in Melbourne on July 22.
Asciano's 1-for-1 entitlement offer at $1.10 is straight forward enough because that will raise $768 million and double the shares on issue to 1.4 billion whilst treating everyone equally. Everyone, that is, who has a registered address in Australia or New Zealand because ''foreigners'' won't even be sent the prospectus in a bizarre Down Under version of financial protectionism.
Asciano's $1.38 billion placement gives a rails run to car-racing enthusiast, CEO and major shareholder Mark Rowsthorn.
After dithering for months and imperilling the whole debt-laden company by refusing to raise capital that might dilute his position, Rowsthorn has now negotiated himself a couple of special deals.
The biggest is the proposed private placement of 137.1 million shares to Rowsthorn at just $1.10 a share provided shareholders approve it on July 22.
Rowsthorn won't have to make this investment decision for another six weeks and by then he'll be hoping Asciano will have been re-rated in the same way shares in Wesfarmers, Bluescope Steel and Fairfax Media (publisher of this website) surged after decisively dealing with their debt challenges.
You can tell that Asciano is sensitive about the special deal for Rowsthorn and the institutional insiders when they include this line in their raft of ASX statements yesterday:
''To the extent that there is significant unsatisfied demand in the retail entitlement offer, Asciano will consider conducting a Security Purchase Plan offer to eligible securityholders (subject to obtaining the necessary regulatory approvals).''
When a company with just 699 million shares on issue that last traded at $1.82 suddenly decides to place 1.255 billion of new shares at a 40% discount of $1.10 you're entitled to wonder if something fishy is going on.
And the fishiest element is the way Rowsthorn appears to be simultaneously lining up with the institutional insiders and the retail investors to maximise his position.
Asciano announced yesterday that the retail component of the $769 million 1-for-1 entitlement offer is $439 million or 57.1%, suggesting Asciano has close to the highest proportion of retail ownership of any major Australian company.
That's because Rowsthorn is buying himself time by lining up in the retail offer, rather than the indecently rushed accelerated institutional offer taking place right now.
Rowsthorn is the largest Asciano shareholder with 70.86 million shares or 10.79%. He is entitled to spend $78 million buying another 70.86 million shares at $1.10 in the 1-for-1 offer - but won't pay until it closes on July 13.
Given that the record date is June 18, Rowsthorn could start dumping his current shares as soon as trading resumes this week without losing the right to buy more. He then gets the chance to take a $150 million placement in late July at $1.10 a share.
The 2009 BRW Rich List estimates Rowsthorn and his 79-year-old father Peter are worth $573 million. Peter was one of the original founders of Toll back in 1986 and since retiring as Toll chairman in 2003 has poured close to $100 million of his fortune into the extravagant Wadham Park stables near Woodend in Victoria.
It is hard to believe that Mark Rowsthorn could and would want to come up with $229 million to take up his full Asciano entitlement and special placement to remain the largest shareholder. Whilst the $130 million stake is currently ungeared, pumping in another $230 million would trigger constant speculation about margin calls.
As a proportion of issued capital, Asciano is attempting one of the biggest placements the world has ever seen. It finished last week with 699 million shares on issue and is now proposing a 380% increase to 2.653 million shares. Talk about dilution.
Corporate voting in Australia is already a manually driven mess and the July 22 Asciano EGM will be a major test of the system. If most of the institutions take up the placement, they won't be able to vote their stock on the resolutions seeking to approve the placement of 137 million shares to Rowsthorn and an additional 909 million share placement to the clients of UBS and RBS.
This could leave the heavily diluted rump of retail investors with enlarged power to vote down the deal. However, given all the fear and loathing about Asciano's $4.9 billion debt, investors will no doubt be frightened into submission, Oz Minerals-style.
The following list breaks down the institutional and retail components of the major entitlement offers so far in 2009 and also details whether there was a placement component to the raising:
: retail component $3 billion or 60% of $5 billion entitlement offer. Institutions placed additional $900 million worth of shares.
: retail component $439 million or 57.1% of $769 million entitlement offer. Additional $1.38 billion placement to institutions and Rowsthorn.
: retail component $502 million or 51.9% of $967 million entitlement offer. Institutions placed additional $390 million worth of shares.
Steel: retail component $616 million or 43.6% of $1.41 billion entitlement offer. No placement.
: retail component $295 million or 46.2% of $639 million entitlement offer. Institutions placed additional $240 million worth of shares.
: retail component $1.25 billion or 41.7% of $3 billion entitlement offer. No placement.
: retail component $285 million or 27.9% of $1.02 billion entitlement offer. No placement.
: retail component $183 million or 26.8% of $684 million entitlement offer. No placement.
: retail component $420 million or 21.1% of $1.98 billion entitlement offer. Institutions placed additional $200 million worth of shares.
: retail component $178 million or 18.8% of $947 million entitlement offer. Institutions placed additional $153 million worth of shares.
: retail component $60 million or 17.1% of $350 million entitlement offer. No placement.
: retail component $91 million or 13.8% of $659 million entitlement offer. Institutions placed additional $90 million worth of shares.
The really frustrating thing above the above list is that all of the offers have been comfortably in the money and retail investors were not allocated their full entitlement, partly due to apathy and party due to unfair scale-back policies.
The bargain basement Bluescope Steel offer at just $1.55 a share was a classic case in point given it was more than 60% in the money when applications closed on May 29.
Retail investors only stumped up $523 million of the $614 million worth of shares on offer, so the underwriters, led by Credit Suisse, pocketed a quick-fire profit of more than $60 million on the 59 million shares it had to buy at $1.55 each earlier this month. Bluescope shares fell 19 cents to $2.65 yesterday.
It is probably a bit rich to rail against the structure of capital raisings when your columnist made about $150,000 so far in 2009 as a tiny shareholder in almost 700 stocks (see full portfolio here) playing the angles on 33 different entitlement offers and share purchase plans. None of this would be possible with a fairer system of renounceable rights issues.
There are another 38 offers in the pipeline and all the past and current plays are detailed here.
Both the wife and I are on the Asciano register and if the stock stays above $1.25 we'll be throwing the kitchen sink at the $439 million retail offer which does allow for investors to apply for additional shares over and above the 1-for-1 entitlement.
Sadly, Alumina's $285 million retail offer was the only major issue so far where retail investors have applied for more than the available stock.
We're about to find out just how much of the $1.25 billion on offer from Santos has been snapped up by retail investors and Stockland's $420 million retail offer closed last Thursday with an announcement expected before the shares debut on Friday.
The MacMahon offer demonstrated that retail investors can rush an attractive proposal, so here's hoping investors have leapt on some of the opportunities outlined in these two earlier pieces on capital raisings for Businessday:
How to make $75,000 in three months
One of the best deals presented so far this year came from Horizon Oil - which was offering a $10,000 share purchase plan at 10 cents when the stock had soared as high as 19 cents. Even then, less than 50% of the 5200 shareholders took up the offer, suggesting that many Australian investors look a gift horse in the mouth when it comes to investing.
The answer is better education and a fairer system of renounceable rights issues because at the moment, retail investors as a class are getting savagely diluted with Asciano the worst example so far.
is a shareholder activist and publisher of The Mayne Report. He contributed this article to and can be reached on