Rumblings from Enbridge’s $2 billion equity financing – an offer that’s apt to be upsized by 15 % which closes Tuesday – continue.
One rumbling concerns how the stock was allocated. Having a cast of 17 firms, four more dealers were involved this time around as opposed to their previous equity offering, a $460 million issue in mid-2014.
But there had not been room for almost any selling group firms. Those firms, which don’t carry the risk that’s assumed with the underwriting group, put orders in on behalf of their clients (normally retail) hoping of having a so-called fill.
On this financing – announced at 4:42 p.m. last Wednesday C potential selling group firms received an expression sheet at approximately 4:51 p.m. 3 . 5 hours later – a remarkably short time to advertise this type of large amount of stock – the identical firms received an e-mail from syndication “that the financing had been closed and there is no selling group allocation.”
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Instead all the available stock was placed through the firms inside the syndicate: allocations ranged from 16 percent for RBC and Credit Suisse to 0.Five percent for every of First Energy, Macquarie Capital Markets and Peters & Co.
“You place a purchase set for explains to respect to some customer and you’re simply said can get nothing. It’s deflating,” noted one broker. “Get exactly the same result often consecutively so you start losing clients,” he added noting that although not using a selling group might have to go inside the short term, it’s not constructive within the long-term perspective.
The argument runs this way: around the cycle issuers need both large and small dealers to satisfy their demands. But to ensure that the small dealers remain when the big dealers decide they won’t be covering that segment in the market, they have to get area of the bargains. (A couple of years back, in another blow, the federal government of Ontario did away with selling group participation because of its bond offerings.)
And Enbridge will be a great deal: the orders piled in (more than 200 institutions participated); demand was strong as continues to be after market performance: the shares are up by more that $6 from issue price. It could happen to be easy money for the smaller firms – though because it’s a vintage zero-sum game, their revenue might have can be found in the cost of the underwriters.
This broker contrasted the Enbridge knowledge about what went down while using the privatization of Hydro One out of the seller (Ontario government) insisted on broad retail participation – an objective which was partly achieved by along with a number of selling group members. That edict was easy to apply since the offering was marketed – rather than bought, where self interest necessitates shares be sold as soon as possible.
Who gets what in the deal can be a multi-part process. The general allocation between firms – meaning the underwriting liability each dealer agrees to – is positioned with the issuer with input from the lead managers or book-runners. Enbridge’s policy is: “We take care of people who look after us.”
With input in the issuer, the split between institutional and retail is placed, a determination that could change once all of the orders are in fact received. In an over-subscribed deal, the very best allocation, which institutions get stock could be tense.
bcritchley@nationalpost.com
