TL;DR
Entitlement offers (EOs) provide existing shareholders the opportunity to purchase additional shares in proportion to their current holdings. These offers can be renounceable or non-renounceable, and their timing is governed by ASX-mandated timetables.
Table of contents
What is an entitlement offer?
An entitlement offer (EO), commonly referred to as a rights issue, is an equity capital raising method where existing shareholders are granted the right to purchase additional shares in proportion to their current holdings. These rights can take the form of renounceable (tradable) or non-renounceable entitlements (non-tradable).
Who can participate?
EOs like SPPs, are exclusively open to existing shareholders (hence the term, shareholder offer). The size of one's existing holding directly determines the extent to which one can participate in the offer.
What's the timing?
The timeline for an entitlement offer involves several stages, including the preparation and verification of offer materials and a minimum of 18 days from the announcement of the offer to trading. ASX mandates offer timetables, typically detailed in Appendix 7A of the ASX Listing Rules. Issuers must agree on the timetable with ASX before launching the offer.
What are the costs?
Similar to SPPs, if EOs aren’t underwritten, they avoid the management fees associated with lead managers. Most costs relate to preparing the offer booklet and other documents, usually managed by the CoSec (and delegated to lawyers if necessary).
How do you determine the offer price?
The ASX requirement stipulates that the offer price should not exceed the volume-weighted average price (VWAP) for securities in that class. This calculation considers the last five days on which sales in the securities were recorded, usually before the announcement date.
What's required from management?
Management's responsibilities in an EO include:
Determining the size and terms of the offer.
Engagement with a lead manager, especially if underwriting is needed.
Preparation of regulatory filings and offer documents for shareholders.
Coordination with the registry to facilitate applications, manage shareholder communications, and provide administrative support for settlement and allocation.
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Entitlement offers, or rights issues, offer a structured approach to equity capital raising that prioritises existing shareholders' participation. While flexible in structure and protective of shareholder interests, they come with regulatory complexities and extended timelines that require careful planning and management.