This is from John Lawerence in Tasmania,and it is related to my quip superannuation remark
one thing that sets Gunns apart from other MIS companies is that their share register is dominated by larger institutional investors.
Back in early September 2008, Gunns had approximately 400 million issued shares. They embarked on a capital raising in 2 stages. First there was a quick whip around their institutional shareholders, who held approximately 70% of the shares. They took up roughly 7 new shares at $1.50 for each 10 shares they held at that time, a total of 224 million new shares. This raised $336 million. The second stage of the capital raising was a 7 for 10 offer to the remaining 30% (approximately) small retail investors at $1.50. At this time the market price was edging below $1.50, so investors were wary about taking up a rights issue at a premium price. It was made so much worse when one of Gunns’ Directors starting buying at a price below the rights issue price. Taking a lead from this demented act, retail investors ignored the rights issue, taking up less than one million shares.
The number of issued share increased to over 600 million. (It is now 636 million) and the shares held by institutional investors grew to approximately 85%.
The $336 million extra contributed by institutions would have included superannuation monies. Larger super funds, retail and industry funds, do not invest directly in shares. Instead they allocate a certain amount to an institution to invest on their behalf. The larger the super fund the less likely they are to have exposure to Gunns. Gunns is not a large company by ASX standards. It is outside the Top 100. Even a small investment by a Fund may represent a reportable holding in Gunns.
The institutions would have sought some assurances from the Gunns’ Board when they contributed to the rights issue about the future direction of the Company. They would not have offered John Gay carte blanche to continue as he has done for as long as he sees fit. I’m of the view that we will hear something definite about the mill this month. Meanwhile the share price goes up and down. The small number of retail investors and day traders are trading on rumour most probably. It’s difficult for an institution to buy and sell without being noticed. So far I don’t think either has been happening.
The institutions must be growing weary of the show.
They won’t continue to put money into Gunns or buy their shares on the open market unless they can see a return at some stage.
Posted by John Lawrence on 11/06/09 at 08:39 PM
GTP Price at posting:
12.0¢ Sentiment: None Disclosure: Not Held
