Breakingviews - Australia Inc reruns its crisis capital playbook

The National Australia Bank Logo is seen on a branch in central Sydney, Australia, February 8, 2018. REUTERS/Daniel Munoz

HONG KONG (Reuters Breakingviews) - Companies Down Under are dusting off pages from their financial crisis playbooks. National Australia Bank said on Monday it was raising up to A$3.5 billion ($2.2 billion) in what would be the biggest local equity issuance since the pandemic spread. Just as in 2008, the country is weathering the disruption better than most. Restocking coffers makes good business sense, but it’s happening again at the expense of mom-and-pop investors.

The country’s third-largest bank joins a growing list of Australian companies rushing to issue new shares even as profit fell and it slashed the dividend. Despite growing Covid-19-related provisions, however, there was no obvious cause for alarm. NAB’s common equity Tier 1 capital ratio stands at 10.4%, rising to a sounder 11.2% following the placement and share sale.

As has been the case for many of Australia’s capital calls over the last month, big funds will be outsized participants in NAB’s. Retail investors, who represent around half the shareholder register, can only subscribe to 14% of the total raised and may be diluted further by purchase caps that will limit any upside. The median share price gain for the recent crop of local issuers through Friday has been over 13%, according to governance advisory firm Ownership Matters.

Such disparities have been more glaring beyond NAB. Data centre operator NextDC, for example, recently took advantage of new guidelines to help troubled companies raise more money quickly. A discounted placement for a maximum allowable 25% of its shares was announced when the stock was already at an all-time high, and the proceeds are largely earmarked for growth initiatives. Likewise, a fundraising by hearing-aid maker Cochlear was skewed toward professional investors, with about a third of the capital coming from one firm.

Australia will suffer coronavirus-related costs, even though it has done a comparatively better job containing the disease so far. More listed companies are therefore bound to issue new equity. They raised nearly A$100 billion during the financial crisis; Ownership Matters puts the tally so far at a little more than one-tenth as much. It is unfortunate, however, that a market designed to raise capital efficiently is being abused to disproportionately favour a few.


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