Good news has outweighed bad in Australia for far longer than IFR Asia has been around, with the country now recession-free for almost 26 years straight. The combination of a natural resources boom, a banking oligopoly and – perhaps most importantly ¬– the effect of a desirable climate on house prices has contributed to strong and stable growth.
The Aussie capital markets have played their part in this golden era, too, weathering global crises that brought many other economies to their knees.
But was this outstanding record ever in danger? How did Australia escape the global financial crisis, or GFC as it is commonly known Down Under, relatively unscathed?
Part of the answer can be found several years prior to the crash in the introduction of the accelerated rights offer in the early 2000s, which gave companies a way of raising large amounts of capital with minimal market risk.
The first deal of its kind was a modest A$153m equity raising for Adsteam Marine, a tugboat operator that wanted to take over its main rival for a price around twice its own market capitalisation.
ABN AMRO Rothschild and UBS underwrote a novel solution, an offer type known as a “jumbo” that combined an equity placement and a rights offer into a single capital raising. Under the format, the arrangers go to existing institutional investors first, building a book for the placement and right shares on a pro-rata basis. Any shortfall is allocated to existing institutions that bid over their entitlement, or to new institutional accounts, and the entire process takes roughly 24-48 hours.
The lengthy retail rights offer follows once the institutional portion is completed, but any uncertainty is removed as investors already know the dilution from the capital raising and the impact on the stock price.
The jumbo has developed since then, but the tugboat acquisition proved a watershed moment for the Australian equity capital markets. Condensing the institutional portion of a rights issue into 2-3 days, rather than the standard 3-4 weeks, would prove crucial when the global economy started to go south.
Simon Cox, now co-head of equity capital markets for Australia at Credit Suisse, remembers the global financial crisis as a frantic 18 months of recapitalisations, for which the accelerated rights issue was a key tool.
“Creditors were very quickly able to get money back from debtors,” said Cox, who spent over 20 years at UBS before joining CS in 2016. “In many instances cash got put straight back onto bank balance sheets, which reduced their liquidity problems.”
“I think there was some envy from bankers in other jurisdictions. They did not have these mechanisms to access equity capital so quickly.”
According to the ASX, the amount of money raised from rights issues and accelerated rights issues in 2009 jumped to around A$40bn, roughly double the 2007 total.
The fast pace of evolution on the sellside has been mirrored on the buyside over the past 20 years, with the diversifying of the investor base transforming the economy by opening the door to whole new pools of capital.
“Back then, most deals were anchored by a few funds,” said Cox. “It was a relatively narrow club. Since then we’ve had the river of gold that is superannuation. It started as a trickle, then turned into a stream and then a waterfall.
“These days it sits at around A$2trn, and assists Australian companies to finance their businesses. In addition to this pool there are also retail investors, life insurers and international investors – many of whom are now based in Asia.”
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