Institutional placements, share purchase plans, and accelerated offers are set to become the name of the game for investors as NZX-listed companies seek to shore up their balance sheets to ride out the storm prompted by the Covid-19 pandemic.
In mid-March, as it was becoming clear that many companies wouldbe affected by the outbreak and the Government's attempts to contain it, the NZX loosened the rules to allow swift capital raises.
The window of opportunity, which will close on October 31, means institutional share placements representing up to 25 per cent of a company's share capital can be launched, up from 15 per cent previously.
For SPPs, the cap has been increased from $15,000 to $50,000 per shareholder.
Timing requirements for rights issues will also be shortened, to facilitate easier and quicker pro rata offers.
Last week, the NZX went further and allowed accelerated non-renounceable entitlement offers (Anreo) - the same structure used by Kathmandu in its deeply discounted $207 million capital raise last week.
And this morning, Auckland International Airport announced plans to raise up to $1.2 billion to bolster its balance sheet.
The Anreo structure is common in other markets, including the ASX, and can be an effective offer structure to enable issuers to access capital funding in periods of market volatility, NZX Regulation said.
Bell Gully corporate lawyer Chris Goddard said regulators on both sides of the Tasman had offered some "relief" from the rules to allow different capital raising structures to occur.
He said the Anreo structure was a "metophorical gun to the head" for shareholders.
After the NZX's initiatives, listed companies now have more tools in their toolbox to deal with their capital structures.
At one end of the capital raising spectrum lies the institutional placement - an offer of shares to institutional investors where retail investors do not have the opportunity to take part.
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Goddard says this is the most likely route for a company wanting to raise funds quickly - just three to four days.
But he says the downside of placements is that retail shareholders do not get the opportunity to participate - so they run the risk of having their holdings diluted in value.
That's why most placements are followed by a share purchase plan (SPP) for individual shareholders, which adds a degree of fairness and offsets the dilutive impact of a placement.
Goddard says a placement gives companies "upfront" certainty of funding, while an ensuing SPP offers some balance for the retail shareholder.
Further along the spectrum is the pro-rata offer - a traditional rights issue where everyone is offered pro-rata right to take up shares - all on the same timetable for both institutional and retail shareholders.
Goddard said it was unlikely that companies would go for the standard rights issue because of the time needed to get one under way.
At the other end of capital raising spectrum comes accelerated structures, where the process is sped up and where there is no rights trading.
The process means that shareholders don't have the mechanism to get value by trading their rights, as would be the case with a standard rights issue.
"So the big change that happened is that the relief now allows you to run an accelerated offer without having any rights traded, and without having a bookbuild at the to get value back for shareholders.
"So it's essentially gun-to-the-head territory for shareholders," Goddard says.
"You either put your money in or get diluted."
However, such offers stood a better chance of being underwritten.
"They are the type of structures that you use in volatile markets because they can happen a lot quicker and shareholders are a lot more incentivised to participate, which increases the likelihood of underwriting," he says.
"Underwriters are more willing to underwrite a structure whereby the shareholders have a metaphorical gun to the head - subscribe or be massively diluted - compared to an offer where they might get some back from them trading rights," he said.
"The choice for shareholders really is quite stark - either put some money in or be massively discounted."
Accelerated offers mean the fund raising timetable is a lot quicker, so the risk period is shorter.
"Essentially we think that if a placement and SPP plan will deliver enough money to a company, that that's the option that they will go for.
"And if it won't, they will be pushed into a pro-rata offer, and of the pro-rata choices, we think the most likely one they will use will be the Anreo structure, where you don't have any rights traded and no book build and where the choice is: put you money in or be diluted," he said.
With companies raising capital, much would come down to the amount sought and the timing.
