Retail investors get in on the book-build game

Access to placements and floats has often been reserved for the favoured clients of large or full-service brokers – until now.

Brendan Swift

Jun 26, 2014 – 4.28am

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Access to placements and floats has often been reserved for the favoured clients of large or full-service brokers – until now.

The launch of ASX BookBuild last year allows companies to raise capital from every eligible investor across the market while preserving the key role of the lead manager.

The system, which was developed by On-Market BookBuilds in conjunction with the Australian Securities Exchange, is in its early days but has already been used by several companies to raise more than $100 million.

The service has received widespread support, including from the Business Council of Australia (BCA) and the Australian Institute of Company Directors, as well as from a number of online brokers such as Bell Direct.

“We’ve always been about improving the transparency of the market place and for clients in particular – this is a key initiative in that context," Bell Direct chief executive Arnie Selvarajah says. “It also provides retail clients with a level playing field in terms of getting access to some of these floats."

Bell Direct took part in the first raising to employ ASX BookBuild: the $24.7 million placement by WAM Capital, which closed 67 per cent over-subscribed.

While the industry’s largest online broker, CommSec, has yet to come on board, others have also supported the service. CMC Markets has offered two placements via ASX BookBuild to its investors: the first by mineral explorer Stavely Minerals and the second by fund manager Cadence Capital.

CMC Markets chief market strategist Michael McCarthy says the service could revolutionise the market, boosting investor access and loosening the power of the largest lead managers to favour particular groups of investors.

“It brings democracy to that situation – there’s no longer a huge advantage to having the biggest client list because people with an account at any broker can participate in these capital raisings," he says.

However, the biggest challenge remains convincing those brokers who have traditionally controlled share allocations and the final issue price as lead manager.

However, ASX BookBuild chief executive Ben Bucknell says the role of the lead manager is still crucial and they retain the biggest part of the book.

“Investors that are deemed to be ‘good for the register’ can be tagged as priority and allocated first," he says. “This can be used to prevent dilution of shareholders, while still getting the benefits of contestable pricing for the issuer.

“The facility provides a better process for issuers, shareholders and investors. Lead managers that offer the ASX BookBuild facility will win equity capital markets deals from those that don’t offer to use it."