CANBERRA: one of Australia’s biggest corporate fundraising programs the Commonwealth Bank’s $5 billion cash call risks becoming a fizzer, analysts say, as global share markets totter. Shares in the bank yesterday fell below the price of new stock being offered to investors in its rights issue, the second biggest in Australian history.
CBA shares hit an intraday low of $71.26, below the $71.50 offer price announced last month, before rebounding to close at $72.15. It means Australia’s biggest bank is just a bad trading day away from a scenario where investors can buy existing shares more cheaply on the open market than the new shares on offer.
That leaves investment banks Morgan Stanley and UBS facing a potentially mammoth bill after they committed to underwrite the program, soaking up any shortfall when the offer closes at 5pm next Tuesday. The CBA has already raised $2.1 billion from institutional investors but is seeking another $2.9 billion from so-called retail — or “mum and dad” investors. Goldman Sachs is in the same boat as UBS and Morgan Stanley, albeit to a much smaller degree, as underwriter to Myer’s poorly-received $221 million raising announced earlier this week.
The struggling retailer has offered investors two new shares for every five they own at 94c each. Its shares plunged more than 25 per cent on to an all-time low of 90c on Thursday when trading resumed following the announcement.
They clawed back some ground yesterday, but still closed below the rights issue price at 93c. For the CBA, its share price would have seemed unthinkable when the bank launched its bumper cash call on August 12, analysts said. That offer, of one share for each 23, was priced at a 10.5 per cent discount to its then share price of $82.12, adjusted for its final dividend.
Since then, investors have been swamped by a tidal wave of bad news, spooked by signs that China’s slowdown could prove long-lasting. Domestic figures have done little to restore confidence this week, with growth and consumer spending figures both undershooting expectations.
The US was last night set to provide the next flashpoint for global markets, with investors ready to pounce on any weakness in job figures for August. Australia’s benchmark ASX 200 closed up 0.3 per cent yesterday at 5040.6 points, but has lost almost 8 per cent since the CBA announced its offer.
The nation’s biggest lenders have been hit with the challenge of finding more funds to meet stricter capital reserve rules after the banking regulator, the Australian Prudential Regulation Authority, said in July an additional $28 billion would likely need to be sourced.
OptionsXpress analyst Ben le Brun said the CBA — a stock in which virtually two in every three shareholders is a retail investor — had consistently traded at a premium to other international banks but was now being dragged back.
“It’s potentially also at the bottom of the cycle for bad and doubtful debts,” he said. “Having said that, it’s fallen into deep value territory compared to the past year or two and I’d be shocked if it didn’t find plenty of support at these prices.”
Mr le Brun said, of the big four banks to launch a capital raising this year, National Australia Bank’s $5.5 billion program in May — the biggest in corporate Australian history had the smoothest birth. ANZ’s $3 billion pitch last month was criticised for the weight of portions offered to institutional investors. Its retail offer also closes Tuesday.