What is an ASX placement?
One of the ways a company can raise capital to fund its corporate goals is through a placement. This involved creating new shares and issuing them to select investors. But there are some important distinctions to be involved.
A placement is a way for a company to raise capital by issuing new shares to institutional, sophisticated or professional investors. Sometimes in conjunction with raising capital through a placement, companies will offer a share purchase plan (SPP) to existing shareholders to ensure retail investors have access to the same investment opportunities as institutional, sophisticated or professional investors. Placements provide companies with advantages such a flexibility in pricing and timing and the ability to attract institutional investors. There are potential drawbacks to consider, such as the exclusion of retail investors and the dilution of existing shareholders (particularly where a share purchase plan is not offered to existing shareholders in tandem).
Why raise capital through Placements?
Compared to other methods of equity raising, placements offer speedy methods for companies to generate equity capital, often requiring just days or weeks to complete. They also entail lower disclosure and reporting requirements, thereby minimising associated legal fees for the company. As a result, placements can represent a highly efficient option for companies seeking to generate equity capital without the need to prepare and lodge a prospectus (a disclosure document) with ASIC and ASX.
Who can participate in Placements?
Retail investors seeking expanded opportunities for equity capital raisings may wish to assess whether they meet the sophisticated investor or the professional investor criteria outlined in section 708 of the Corporations Act 2001 (Cth).
Some of the criteria set out in section 708 includes:
- An investor who has a gross income for each of the last 2 financial years of at least $250,000;
- An investor who has net assets of at least $2.5 million; or
- An investor who has or controls gross assets of at least $10 million (e.g. some fund managers).
Investors must also provide a qualified accountants certificate to confirm their sophisticated or professional investor status.
What should I know before I participate in Placements?
Simply meeting the sophisticated investor or professional investor criteria does not necessarily mean that participating in placements is a suitable investment approach for you. It is important to understand that placements carry risks and it is crucial for investors to carefully consider all potential risks associated with the company and with the offer they are considering participating in. While placements do present investment opportunities, it is imperative for investors to approach such opportunities with caution and perform their due diligence prior to making an investment decision. Investors should also seek independent financial, legal and tax advice before proceeding.
