Miss out on another IPO? Here’s why retail investors get dudded in ASX floats
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Vital Harvest’s IPO closes at the end of the week and it’s unusual: it’s allowing retail shareholders to easily participate in part of the offer.
The real estate investment trust is raising $185 million most from institutional investors, but has reserved $10 million for ordinary Joes.
Typically initial public offerings by mature, less risky companies are taken up by institutions and friends of the investment bank advising on the deal, says Australian Shareholders Association boss Judith Fox.
“It’s one of the things we’ve been concerned about for some years now,” Ms Fox told Stockhead.
“It’s particularly the large profitable companies that the investment banks offer access preferentially to professional shareholders and their institutional clients.”
>> Scroll down for a table showing how 83 ASX floats have performed in the past year
If retail shareholders do get a look in, it’s only because they are associated with the right broker which is handling the usually-small retail share allocation.
Vital Harvest isn’t acting out of altruism though.
Chair Liza Whitmore said the berry and citrus farmer was after stamp duty relief.
Victoria and South Australia said yes, but Tasmania stipulated that it would only do a tax deal if part of the IPO was thrown open to everyone in a general offer, rather than just through brokers.
The $175 million raised from institutions has already been sold and was oversubscribed. The $10 million retail offer closes on Friday. More info here.
Retail investors struggle for access to IPOs
The concern of the Shareholders Association is that retail investors are shunted into smaller and riskier investments when mature IPOs are pre-sold to institutions and professional investors — sometimes before the prospectus has even been issued.
A scan of the 45 or so IPOs listed on OnMarket, a platform which provides open, non-broker access to IPOs to retail investors, suggests only about eight have reasonable revenue figures or a profit.
Ben Bucknell, chief of IPO marketplace OnMarket, has been lobbying for a rule change to give retail investors a minimum 25 per cent of shares offered in all initial public offers. Punters are locked out of two-thirds of IPOs, he says.
But he’s no closer to achieving his goal.
OnMarket is getting good traction among small IPOs and he says they have provided retail access to about a third of all IPOs since they launched in later 2015.
But Mr Bucknell, like Ms Fox, believes the retail end of the market is still being “dudded”.
The ASX was not able to respond to Stockhead queries before publication.
How many of the top IPOs have retail investors missed out on this year?
The top performing IPOs in 2018 so far have been Adriatic Metals, ReadCloud, Star Combo, ClearVue Technologies, Eagle Mountain Mining, Galileo Mining, Keytone Dairy, Paygroup, Elixinol Global, and Pivotal Systems.
Of these, retail investors without a broker connection could have had a piece of Keytone and ReadCloud.
The others either specified that investors had to go through brokers, or did not say at all whether they where offering retail investors anything.
Mr Bucknell says it can be difficult to work out from a prospectus whether it’ll give an retail allocation. By law prospectuses have to include an application, but that is no assurance that there are share there for you.
Among the biggest IPOs — whether they got through or not — you’d have had to know the right broker for Prospa and Viva (ASX:VVR), even though the latter allocated $600 million to retail investors.
Constellation Resources (ASX:CR1) is only inviting “certain members of the public”, according to the prospectus.
Here’s table showing how 83 ASX floats have performed in the past year:
Scroll or swipe to reveal full table. Click on headings to sort