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.
Typically in share placements, only sophisticated investors and institutional investors can be involved in the process. Despite this, it is actually the preferred method of raising capital for many ASX listed companies and it usually is not announced to the public until complete.
So what is it?
A share placement on the ASX is a way for listed companies to raise capital via an offer of new shares to investors. However, due to the Corporations Act 2001, only sophisticated, professional or institutional investors can participate in placements.
They are often accompanied by a share purchase plan (SPP) but companies can offer them separately. Doing a placement alongside a SPP allows retail investors access to the capital raising. A SPP gives retail investors the chance to increase their holding and for the company to raise further funds. These are usually capped at a certain amount per shareholder.
Share placements have several advantages for companies because they can be conducted relatively quickly and are often far more extensive than subsequent share purchase plans to retail investors.
As a placement is not a pro rata offer and does not require any offer to be made to the acquirer’s shareholders, it will have a dilutive effect on existing shareholders. This means investors' stake will be reduced and they will be entitled to less profit. Additionally, they are often sold at a discount to the current price and may see an equity fall accordingly.