On the SGX corporate actions board, there are a total of 38 different types of corporate actions. These include major corporate actions such as Dividend Payments, Rights Issues and Bond Offerings. Shareholders would have to take note of such corporate actions as they can either impact the share price of the entity or even dilute our holdings.
Among those, Private Placements and Preferential Offerings are some of the lesser mentioned activities that can have an equally substantial impact on shareholders. Recently, the real estate sector entities like Keppel REIT, Ascendas REIT and Mapletree Industrial Trust have been releasing such announcements.
Here, we look at the two different but lesser-known corporate activities and the potential impact they have on existing shareholders.
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Private Placements Raises Both Equity And Debt From Private (Accredited/Institutional) Investors
Private placement is a mode of fundraising in equity or debt for listed companies to raise from private market instead of the public market. The private market consists of eligible institutional, accredited, and other investors.
Common forms of placements include the issuance of new convertible shares, warrants, bonds, new or existing shares. Based on Securities and Futures Act Section (SFA) Section 272B, the placements should not be made to more than 50 offerees within a 12-months period.
The private placement products prices are subjected to SGX Rulebook Chapter 8 Section 811. For example, the price of new share issuance cannot price at more than 10% discount to the weighted average price of trades done for the full day of placement. This can be seen for the Keppel REIT’s private placement of new shares where they raised a total of S$270 million in a private placement with a fixed issue price of S$1.130. This is at a discounted price of 4.1% to the volume-weighted average of the share price trading on 17 February 2021 at S$1.1783.
Depending on the product being sold on the private placement, the impact on shareholders varies. In terms of new share issuances, existing shareholders would experience a share dilution. Usually, share dilution would lead to a corresponding dip in share price in the short term. However, that would depend on how the new shares are issued and the reason of the share issuance.
For Keppel REIT, majority of proceeds from the private placement were made for the acquisition of Keppel Bay Tower. As the private placement was used to fund a public deal from December 2020, the share price for the subsequent week after the announcement remained relatively stable.
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Preferential Offerings Are A Means Of Raising Funds Through Existing Shareholders But It Is Different From Rights Issuance
As a listed entity, entities also have the option of approaching the public markets to raise funds. Instead of rights issuance, SGX entities may prefer to do preferential offerings.
Preferential offering is an exclusive invitation for existing shareholders to purchase new shares at a discounted pricing. If the shareholders are unwilling to purchase new shares, they are unable to sell away that invitation to another party and would have to let the invitation expire. This is the main difference between preferential offering and rights issuance. Preferential offerings are also known as non-renounceable rights.
Similar to a right issuance, preferential offerings are made pro-rata to the number of shares the existing shareholder holds. Deciding to participate in the new shares depends on our confidence in the entity or our current cash flow position.
In the scenario that we do not wish to buy into the offered shares, our holdings will be diluted by the new issuances based on the pro-rata basis. Conversely, if we do buy into the offered shares, we can choose to buy in fully or have our shares diluted to a lesser extent. The new shares at the discounted price can allow shareholders to buy in further if they believe in the entities’ growth and performance potential.
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Entities Can Raise Funds By Combining Both Private Placements And Preferential Offerings
Shareholders should also not be surprised if both private placement and preferential offerings happen one after the other.
Corporate actions do not need to happen exclusively. Depending on the amount an entity is required to raise, they may employ both private placements and preferential offerings. This would allow entities to split their fund-raising strategy between the private and public market.
A recent example would be Mapletree Industrial Trust which had an earlier round of S$512.9 million in private placement before going to the market with preferential offering at the basis of 5 new units for every 100 units owned. In total, S$823.3 million has been raised to help Mapletree Industrial Trust finance the acquisition of 29 data centres that is valued at over US$1.32 million.
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