Investment Matters

Underwriting capital raisings: CML and Cardno

In recent weeks, First Samuel has had the opportunity to underwrite two capital raisings - one by CML Group, and one by Cardno.

What is underwriting?

When a company conducts a capital raising, underwriting is usually put in place - certainly for the institutional component - and often for the capital to be raised from retail shareholders as well.   In essence, the broker or investment bank assisting the company with the raising guarantees that a certain amount of money will be raised - a particular quantity of new shares, at a particular price.  The broker/ investment bank will make-up any shortfall. 

The broker/ investment bank usually then seeks sub-underwriters - which take on part of the underwriting commitment - for a fee.  (Please note that when First Samuel receives any fee money from sub-underwriting, it is credited to client accounts in proportion to the size of each client's individual holding in the company that is raising capital.)

Does underwriting ever come into play?

Yes.  For the institutional raising, particular funds may not have the cash available to fully take up their offer.  Or they may elect not to increase their investment in a particular company (as we recently did with Ingenia Communities' raising).

There is often a shortfall for the retail component of any raising; reasons are many, but include retail shareholders not being fully up-to-speed with developments regarding the company, or they don't have the cash available, or they don't have the time to complete the administration behind the offer.

CML and Cardno

As mentioned in recent editions of W&D, CML Group and Cardno conducted capital raisings.  We took up the rights we were entitled to under these offers.   Additionally, your investment team has closely followed developments with these companies.  We view the sub-underwriting that we were able to undertake as an excellent opportunity to acquire additional shares at favourable prices, thereby increase the portfolio weights to more meaningful levels.

Pleasingly, additional shares have been obtained by doing this.   This includes shares obtained this week from Cardno retail sub-underwriting (clients will be able to see these purchases on their online reports).  The raising price was $0.40/share, and the share-price was $0.47/share at close of trade yesterday.