Cheap way to access share purchase plans

But for the cost, it is a convenient, low-fuss way to benefit from the SPP discounts that will appeal to many. Picture: NCA NewsWire / Gaye Gerard

Many investors have been frustrated in recent months, missing out on big capital raisings that favoured institutional investors. If only you had a shareholding in every company then you would at least get a shot in every retail raising.

A new offer from Australia’s largest equity-raising platform is shaking up the way investors access capital raisings. No longer is it the exclusive domain of the institutional investor who scoops up shares at a hefty discount to market price — almost 50 per cent discount on some stocks this year.

When ASX-listed companies raise capital from existing shareholders they do so by either an entitlement/rights issue or more often in recent times a share purchase plan (SPP). Under the entitlement and rights issue, existing shareholders are able to apply to purchase more shares in the company, based on a set ratio. For instance, you may get one more share at a 10 per cent discount for every five shares you own.

Share purchase plans work differently in that existing shareholders apply for a dollar amount of extra shares, and are allocated based on demand, rather than existing shareholdings.

Now an innovative product has popped up from the OnMarket group.

The OnMarket team realised that if they set up a structure whereby an investor buys just one share in each ASX 300 Australia-based company, then the investor would be able to participate in SPPs up to $30,000, which is the limit set by ASIC. 

Called the SPP Harvester, OnMarket uses BNP Paribas as the custodian to enable 300 ASX companies to be owned by the investor. Brokerage is charged at $11 per trade so the investor needs to allow for $3300 brokerage and approximately $3900 to buy one stock in each of the 300 companies. 

In addition to this initial outlay of $7200, the investor will need to have cash available for OnMarket to participate in the SPPs. So to fully utilise the power of the SPP discounts, committing just under $40,000 to this investment is the sweet spot. 

OnMarket CEO Ben Bucknell says: “In a share placement the bankers running it can allocate discounted shares to whichever institutional investors they want, and the institutional investor doesn’t even need to currently own the share, while retail investors miss out. We want retail investors to be treated fairly and when capital is being raised and we saw there was an opportunity for retail investors who hold a significant amount of funds to participate in these capital raisings.” 

Since 2008 there have been an average of 27 SPPs per year with an average discount of 9 per cent. This year the discounts have been higher, at 11 per cent on average, as companies try to raise additional capital to trade through COVID-19 crisis. 

Certainly the timing of the product has been useful, capturing the upswing in the second half of the year: Of the 26 SPPs that OnMarket has traded for their clients, all but two have been profitable, with notable gains in the Metcash SPP at 27.2 per cent and Ingenia Communities Group at 28.4 per cent. 

The minimum investment is $15,000 and ongoing fees include an annual account fee of $540, and a 20 per cent performance fee, which is the sting in the tail. Also when you cash out, you have a bill for $30 per share trade plus 1.68 per cent of the sales proceeds and any exchange and clearing fees. 

But for the cost, it is a convenient, low-fuss way to benefit from the SPP discounts that will appeal to many. The alternative is to set up a trading account with the likes of CommSec and buy the minimum market parcel of $500 in the 300 companies. This would require $150,000 of capital plus brokerage.

James Gerrard is principal and director of Sydney financial planning firm financialadvisor.com.au