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Commonwealth Bank’s $1.5 bln ignore on retail contribution in Australia

Commonwealth Bank’s $1.5 bln ignore on retail contribution in Australia

CANBERRA: Just half of the eligible Commonwealth Bank’s retail shareholders have taken up the offer to buy newly-issued shares through the bank’s entitlement offer, leaving a $1.5 billion shortfall.

Shares in the country’s biggest bank were placed in a trading halt on Friday, as it announced it had raised $1.5 billion from retail shareholders, and it brought forward an institutional bookbuild to raise extra funds from big investors.

The rare step to launch the bookbuild earlier than expected was a response to the volatile market conditions, which have complicated the capital raising strategies of banks. The bank has also signalled it will ask institutions to declare if they are shorting the stock before allocating shares.

CBA is raising a total of $5.1 billion from shareholders to strengthen its capital position. On Friday it said it had raised a combined $3.6 billion through its retail and institutional and retail entitlement offers, leaving a shortfall of $1.5 billion. The capital raising is fully-underwritten, meaning the full $5.1 billion will be raised.

“The retail entitlement offer attracted strong support from shareholders despite the volatile equity markets experienced through the offer period,” the bank said in a statement.

The plunge in bank shares would have eroded support for the retail entitlement, noting that CBA’s share price this week dipped below the $71.50 a share price it was offering to retail shareholders.

The managing director of White Funds Management, Angus Gluskie​, said the result was mainly because of these price movements rather than retail investor wariness towards bank shares.  “The share price for the two weeks before the closing date was languishing below around the issue price,” he said.

When CBA launched its raising on August 12, its most recent share price was $82.12. Over the four weeks since then, it has fallen to $75.13 on Thursday and hit a low of $71.26 in early September.

“It looked like there was plenty of headroom, but they simply picked a bad month to do it,” Mr Gluskie said. On Friday, CBA offered the share entitlements of retail investors who did not choose to buy new stock to institutional investors.

“CBA has decided to exercise its discretion to bring forward the commencement of the retail bookbuild by one day after considering market conditions,” it said. Trading in CBA shares is expected to resume on Monday.