This article appeared in the May 2010 Listed @ ASX newsletter

ASX review of capital raising practices in Australia

On 29 January 2010, ASX released an information paper on capital raising entitled ‘Capital Raising in Australia: Experiences and Lessons from the Global Financial Crisis’

The paper looks at the experience of capital raising over the period of the Global Financial Crisis (GFC), both in Australia and some other major global markets. It provides a description of the framework for capital raising in Australia, the methods used by companies, and how they employed these tools through the crisis. It also examines some of the criticisms that were levelled at particular equity capital raising mechanisms. Significant among its conclusions is that the flexibility of Australia’s capital raising arrangements served Australia’s real economy well during the GFC. It enabled companies, particularly in the finance sector, to replace debt financing and shore up balance sheets at a time of volatility and financing uncertainty, when many global banks required government capital injections. 

The paper noted that as general market conditions returned to normal, then ASX expected the balance between placements and rights issues would revert towards more inclusive offers.  Placements, which are less inclusive, are significantly more timely in times of stress when companies need capital.  Whereas rights issues, while more inclusive, involve longer time frames and underwriting risk.

The paper can be viewed on the ASX website (PDF 314KB).

Copyright 2010 ASX Limited ABN 98 008 624 691. All rights reserved 2010.

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