To be successful today in online broking it’s vital to deliver value and service. Enabling
participation in initial public offerings and other capital raisings is the ultimate for the demanding
self-directed investor writes Andy Rogers, Head of CMC Markets Stockbroking.
Until recently many Australian investors with online brokers were unable to participate in initial
public offerings (IPOs) or other capital raisings. With the advent of ASX BookBuild this has changed,
and his clients are now able to enjoy the democratisation of the market to gain significant return on
their investments. On the flip side, Australian companies looking to raise equity now have a fairer
and more transparent option that delivers the highest standards of corporate governance.
Post GFC, Australian investors are coming back to the market in droves and despite a tendency for
the safer ASX200 blue chip stocks, there’s a definite renewed interest in IPOs. However, for many
‘mum and dad’ investors it can be difficult to access shares in an IPO because the IPO lead manager
gives priority to larger retail and institutional brokers. Now, with the ASX BookBuild facility, all
brokers can access IPOs that use the facility enabling their clients to participate and obtain stock via
their online trading platform.
Democratising the market for retail investors
I’d like to take a look at a recent ASX BookBuild success story, which illustrates the benefits to
investors that IPOs can bring. Stavely Minerals, which recently raised $6million in a fully subscribed
IPO using ASX BookBuild, went on to rise more than 200 per cent on its 20-cent issue price. This is
compelling reading for any investor but the real beauty of the ASX BookBuild system is its simplicity.
Now, investors need only have one online broking account (reducing admin burdens) and the stock
is automatically credited upon settlement.
Clearly there are pros and cons to investing in an IPO, and investors are encouraged to look at all
financial and company history available, so they can gain a feel for the potential of a particular stock
over time before taking the plunge. But the salient point here for retail investors is that they now
have the choice and opportunity to bolster their existing investment portfolio with Australia’s next
potential blue chip stock, from day one.
On the other side of the coin, for directors of companies looking to IPO and raise equity capital there
are a number of key considerations to take into account, as few tasks are more challenging than
Whatever the purpose – acquisition, debt repayment, or just working capital – you can be sure that
shareholders will be watching closely and will want you to adhere to the highest levels of corporate
Added to this, institutional shareholders want an attractive price. As a securities dealer, your
investment bank wants to accommodate its best clients, and as the underwriter it wants the issue
put away quickly. Smaller shareholders wish to avoid dilution. All this takes place while broking
analysts, the media, ASIC and the ASX have ring-side seats.
One of the key concerns CEOs and CFOs have when going through the IPO process is lack of
transparency into the market. Not being able to see the live price and bidding volumes leaves what
feels like a ‘black hole’ of unknowns.
Maintaining control over price and allocations is also key. The ASX BookBuild facility enables
companies to decide what percentage of allocations should go to existing shareholders, priority
bidders, and on-market bidders. Companies may also want to know how many times the book
should be covered and use their judgement and skill to ensure both a strong aftermarket and an
optimal outcome for the company.
The beauty of ASX BookBuild is that it delivers to all of these criteria and provides a fairer and more
transparent option to the traditional off-market model. In essence it enables any broker to join in
the IPO process so their clients can access stock in capital raisings, thus reaching a far greater
By virtue of having more bidders into the book, a company will bring about efficient price discovery
and therefore a truer reflection of what their new shares are worth. This in turn, gives companies
the ability to make more informed decisions during the capital raising process and raise capital at a
narrower discount. All of these core benefits assist CEOs and CFOs in meeting corporate governance
In summary, ASX BookBuild has brought democracy to the Australian stockmarket for investors and
companies alike, and is well worth a look for your long term financial outlook.