TL;DR
Share purchase plans (SPPs) enable existing shareholders to buy additional shares directly from the company, often in conjunction with a placement. They're characterised by longer execution times, lower transactional costs, and specific eligibility and pricing regulations set by ASIC and ASX.
Table of contents
What is a share purchase plan?
A share purchase plan (SPP) is an equity capital raise allowing existing shareholders to purchase additional shares, up to a $30,000 limit, directly from the company at a set offer price. SPPs are often conducted with or following placements, providing a balanced approach to equity raising that includes existing retail shareholders.
Who can participate?
SPPs are exclusively available to existing shareholders. Eligibility requires holding at least one share the day before the SPP announcement. Nominee accounts, like those in brokerages representing multiple shareholders, can also participate, with the nominee managing the process for the beneficial owners.
What's the timing?
SPPs typically run for two to six weeks. This extended period allows ample time to inform shareholders and generate demand, compared to the shorter timeframes of placements.
What are the costs?
If not underwritten, SPPs avoid the management fees associated with lead managers. Most costs are legal and relate to preparing the SPP booklet which is usually managed by the CoSec (who delegates responsibilities to lawyers when required).
How do you determine the offer price?
The offer price in an SPP must adhere to specific regulations:
ASIC requirement
The issue price should be less than the market price during a specific period in the 30 days before the offer or issue date.ASX requirement
The issue price should be at least 80% of the volume-weighted average market price for the securities, calculated over the last five trading days before the announcement or issue date (this requirement can be bypassed if the company counts it towards their 15% placement capacity).
What's required from management?
Management's responsibilities in an SPP include:
Determining the size and terms of the offer.
Potentially engaging a lead manager if underwriting is sought.
Working with the share registry to initiate the raising process and develop a shareholder communications strategy.
Preparing regulatory materials, such as the cleansing notice and SPP booklet, to ensure compliance.
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Understanding share purchase plans in equity capital raising is crucial for companies considering this method. While they can have alternative risks like pricing and more complex disclosures, they include existing shareholders fairly.