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PR Newswire
02-11-2011, 11:12 PM
Published November 2, 2011
IPO investors deserve to know where their money is going
By R SIVANITHY
POSSIBLY in response to recommendations made in this column over the years, it looks like initial public offering (IPO) documents now provide a breakdown of the use of the money raised in unit dollar terms.
Certainly, this is the case with the upcoming Parkson Retail Asia IPO and the market's most recent listing, CNMC Goldmine, both of which give details of where the money collected goes, either as a percentage of $1 or cents out of the dollar.
At first glance, this is simple enough for most investors to understand and so represents a step forward in disclosure standards.
However, close examination reveals disappointingly limited usefulness. This is because instead of reporting use of funds in terms of each dollar invested, current disclosure is in terms of each dollar the company receives. There is an important difference between the two, namely, sums paid out to major shareholders.
To illustrate, take the upcoming listing of retail store Parkson Retail Asia, which is offering 147 million shares at 94 cents each for a total of $138 million, a figure which includes 67 million vendor shares worth a gross amount of $63 million.
The use of proceeds appears on page 40 of a 419-page prospectus, where a breakdown is given of how a gross figure of around $75 million that the company gets is to be deployed:
79.8 cents (for each $1 of gross proceeds) is to go towards opening of new stores;
6.6 cents to technology investment;
5.6 cents for maintenance capital expenditure.
Cast in these terms, it appears that a large portion is to be channelled to the company's core business. However, it is much more useful to go one step back, look at the big picture and provide potential investors with a breakdown in terms of each dollar invested rather than each dollar the company receives. Even better, this should be on the cover and not page 40.
If this was to be done, and taking into account that a net amount of $58.2 million will go to major shareholders, the proper disclosure might take this form:
'Dear Parkson investor, if you buy our shares, here is what each $1 you invest will be used for:
42.2 cents to pay major shareholders;
43.4 cents to open new stores in Malaysia, Indonesia, Vietnam and Cambodia;
3.6 cents for technology investment;
3 cents for maintenance capital expenditure;
7.8 cents for expenses related to the listing.'
The practice of expressing use of funds in terms of one dollar received and not one dollar invested is also present in the market's most recent listing CNMC Goldmine, which raised $16.4 million through an offer of 41.1 million shares at 40 cents each, an exercise that included 17.2 million vendor shares.
Page 50 of its prospectus gives a breakdown of the use of gross proceeds of $9.56 million that goes to the company:
26 per cent for further resource definition and exploration;
22.1 per cent for construction of a heap leach facility;
39.4 per cent for working capital;
12.5 per cent for placement expenses.
However, when recast in the more investor-useful method that uses each dollar invested and takes into account the net $6.66 million that vendors get:
41 per cent goes to vendors;
15 per cent goes to further resource definition and exploration;
13 per cent goes to construction of a heap leach facility;
23 per cent is working capital;
8 per cent is for placement expenses. (Note that 'per cent' in this case can be used interchangeably with 'cents').
CNMC does summarise use of proceeds on the inside of the front cover flap of its prospectus. However, this summary comes without figures and does not highlight the fact that 41 cents out of each dollar raised goes to vendors.
When a company embarks on a public listing, it is in effect asking investors to believe its growth story and therefore buy its shares. In order to do this, it is reasonable to expect investors to be told in simple, straightforward terms what their money is to be used for.
Yet this is usually not the case - offer documents always run into hundreds of pages, the use of funds is typically not on the cover and even when the information is reduced to apparently simple unit terms, the unit used is limited in its informational content.
This is presumably because there is no formal rule requiring companies and their underwriters to either a) place the use of funds on the prospectus cover and b) to express the apportionment of money in terms of each $1 invested.
To properly serve the investing public, regulators may wish to consider formalising such a rule.
IPO investors deserve to know where their money is going
By R SIVANITHY
POSSIBLY in response to recommendations made in this column over the years, it looks like initial public offering (IPO) documents now provide a breakdown of the use of the money raised in unit dollar terms.
Certainly, this is the case with the upcoming Parkson Retail Asia IPO and the market's most recent listing, CNMC Goldmine, both of which give details of where the money collected goes, either as a percentage of $1 or cents out of the dollar.
At first glance, this is simple enough for most investors to understand and so represents a step forward in disclosure standards.
However, close examination reveals disappointingly limited usefulness. This is because instead of reporting use of funds in terms of each dollar invested, current disclosure is in terms of each dollar the company receives. There is an important difference between the two, namely, sums paid out to major shareholders.
To illustrate, take the upcoming listing of retail store Parkson Retail Asia, which is offering 147 million shares at 94 cents each for a total of $138 million, a figure which includes 67 million vendor shares worth a gross amount of $63 million.
The use of proceeds appears on page 40 of a 419-page prospectus, where a breakdown is given of how a gross figure of around $75 million that the company gets is to be deployed:
79.8 cents (for each $1 of gross proceeds) is to go towards opening of new stores;
6.6 cents to technology investment;
5.6 cents for maintenance capital expenditure.
Cast in these terms, it appears that a large portion is to be channelled to the company's core business. However, it is much more useful to go one step back, look at the big picture and provide potential investors with a breakdown in terms of each dollar invested rather than each dollar the company receives. Even better, this should be on the cover and not page 40.
If this was to be done, and taking into account that a net amount of $58.2 million will go to major shareholders, the proper disclosure might take this form:
'Dear Parkson investor, if you buy our shares, here is what each $1 you invest will be used for:
42.2 cents to pay major shareholders;
43.4 cents to open new stores in Malaysia, Indonesia, Vietnam and Cambodia;
3.6 cents for technology investment;
3 cents for maintenance capital expenditure;
7.8 cents for expenses related to the listing.'
The practice of expressing use of funds in terms of one dollar received and not one dollar invested is also present in the market's most recent listing CNMC Goldmine, which raised $16.4 million through an offer of 41.1 million shares at 40 cents each, an exercise that included 17.2 million vendor shares.
Page 50 of its prospectus gives a breakdown of the use of gross proceeds of $9.56 million that goes to the company:
26 per cent for further resource definition and exploration;
22.1 per cent for construction of a heap leach facility;
39.4 per cent for working capital;
12.5 per cent for placement expenses.
However, when recast in the more investor-useful method that uses each dollar invested and takes into account the net $6.66 million that vendors get:
41 per cent goes to vendors;
15 per cent goes to further resource definition and exploration;
13 per cent goes to construction of a heap leach facility;
23 per cent is working capital;
8 per cent is for placement expenses. (Note that 'per cent' in this case can be used interchangeably with 'cents').
CNMC does summarise use of proceeds on the inside of the front cover flap of its prospectus. However, this summary comes without figures and does not highlight the fact that 41 cents out of each dollar raised goes to vendors.
When a company embarks on a public listing, it is in effect asking investors to believe its growth story and therefore buy its shares. In order to do this, it is reasonable to expect investors to be told in simple, straightforward terms what their money is to be used for.
Yet this is usually not the case - offer documents always run into hundreds of pages, the use of funds is typically not on the cover and even when the information is reduced to apparently simple unit terms, the unit used is limited in its informational content.
This is presumably because there is no formal rule requiring companies and their underwriters to either a) place the use of funds on the prospectus cover and b) to express the apportionment of money in terms of each $1 invested.
To properly serve the investing public, regulators may wish to consider formalising such a rule.