IOOF takes a big swing and the gold rush that brought in $2.3b: this week in capital markets

Ben Williamson

Fresh Equities

Just under $698m was raised this week across 23 placements. The largest among them were for IOOF ($452m) and Orocobre ($126m). 

There hasn't been as many rescue raises these past few weeks but plenty of opportunities continue to pop up from companies that are looking to make moves and grow.

IOOF makes a big play in the beleaguered wealth management sector

IOOF will emerge as Australia's largest wealth management provider following their acquisition of MLC Wealth from NAB. The combined entity will lead Australia in funds under management/advice and number of advisers. It marks the end of a long and expensive two decades for NAB as the vendor, and the start of "a real opportunity to focus on core business" (to quote NAB CEO, Ross McEwan).

To seal the deal - there's $1.44b as consideration, ~$1b of which will come from an equity raising. A good chunk closed this week via a $452m placement and $588m entitlement offer. Institutional investors were asked to indicate their intentions early in the accelerated component of the entitlement offer. The result was $282m and a 92% take up rate from existing instos which IOOF's CEO touted as "a strong vote of confidence".  Strangely there is also a $50m SPP that will run concurrently with the entitlement offer, so all shareholders will have two avenues for participating? There is certainly a lot of confidence being placed with existing shareholders... 

Despite this confidence, IOOF resumed trading on Wednesday and saw their share price slide 23%. They then closed the week at $3.59, only marginally above the $3.50 offer price. Both the placement and entitlement offer were fully underwritten, the SPP was not. The placement and institutional component of the entitlement offer are locked away but there's still a retail component to be completed over the next few weeks. If the price doesn't hold above $3.50 it's doubtful that smaller investors will assume their rights (not to mention the SPP). So far during the COVID raising period no underwriters have been left with shortfall shares, we wonder if this might be the first? 

2020 has had two gold rushes, both bringing in billions...

There's been more than one gold rush in equity capital markets this year. Investors have been making money hand over fist with a lot of the ASX200 companies that have been raising to help weather the COVID storm and/or exploit cheap growth opportunities. But there has also been a more literal gold rush as the price of Gold surges close to USD$2,000 / ounce and Australia's fertile mining industry takes full advantage. Gold is a safe haven asset and often appreciates during times of economic uncertainty. Combine this with Australia's extremely numerous small cap mining sector, and you have a big opportunity. At least $2.3b has already been pumped into the Gold sector during 2020. There are a few companies in that count who are producing gold but the lion's share is for companies that are out looking to strike new gold. 

Every week there are a dozen or more companies that we see pitching their Gold asset and tapping investors for funding. Most of these companies have been the beneficiary of favourable share price returns driven by the gold price and are received by an excess of hungry investors. 

A lot of these raises are filled within minutes. One such example this week was Peako Limited. The company is a little known gold explorer looking to hit the mother-load in WA's East Kimberley region. They raised just under $1m this week via a placement which will be followed by a 1 :5 entitlement offer on equal terms. Such is the demand for these Gold plays that the deal was investor-led and oversubscribed entirely by cornerstone bidders. That means that wall-crossed investors bid for the entirety of the offer during the night before the trading halt. 

Investors are spending billions chasing this Gold Rush, and making a fair amount as well. Australia's first gold rush in the 1850s lasted almost a decade, we wonder how long this one will last?

Not already a Livewire member?

Sign up today to get free access to investment ideas and strategies from Australia’s leading investors. 

........
This does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or any other product or service by Fresh Equities Pty Ltd, its representatives or any other third party regardless of whether such security, product or service is referenced.

Ben Williamson
CEO & Co-founder
Fresh Equities

Ben is the co-founder and CEO of Fresh Equities, a tech start-up helping sophisticated and wholesale investors get access to the majority of listed capital raises.

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.