A public listing: the pros and cons
Nobody knows the highs and lows of life on the Australian Securities Exchange better than Paladin Energy’s John Borshoff.
After floating on the ASX in the mid 1990s, the share price of the uranium miner struggled along below 10¢ and had a modest market capitalisation of $2 million in 2003.
He blamed the difficulty that the uranium mining company had in raising investment funds on a mass phobia about nuclear power, fuelled by horrific memories of Chernobyl.
But a decade ago, research into climate change presented the public with an even bigger worry — carbon emissions.
Dirty, coal-based electricity generation was the new environmental bogey man and uranium’s fortunes boomed as people saw it as a potential alternative energy source.
At Paladin’s peak in 2007, its shares were $10.80, a massive boost that helped rocket its market cap to $4.2 billion.
The 2011 Fukushima nuclear power plant disaster in Japan sent Paladin Energy on another dip and turn on the ASX rollercoaster.
Since that catastrophe, the public appetite for uranium has remained stubbornly low.
Mr Borshoff knows well the frustrations of being on the receiving end of investors’ changing appetite but said the decision to list publicly was never in question.
Back in the mid 1990s, he knew that without public funds, the “noble” vision he had for an efficient supply of nuclear power would never become a reality.
He said many small and medium enterprises made the mistake of refusing to list in a stubborn bid to retain full ownership of their product or company.
“They end up with 100 per cent of nothing, ” Mr Borshoff told Big Deal.
“Inventors do that. Inventors think whatever they invent is the thing that is of actual value, and they don’t want to give away any of their genius.
“But their genius is only one part of it. Many great computers have been invented but only Apple got through to the mass market.
“There were plenty of other great computers around at the time but it all depended on how it was sold, and this and that and the other.
“To have a lot of something little is not the way to go.”
Mr Borshoff said his company’s survival has had several near misses, with its cash flow getting down to as low as $70,000.
But in a sign of the sometimes sudden change in the fortunes of publicly listed companies, an unsolicited phone call saved Paladin in 2000.
“The real hard time was in 1998, 1999 and 2000, ” he said. “We had no money, we couldn’t raise anything, and we were trading at 1¢.
“A guy from Hawaii rang up. I was going down to Manjimup, just passing Donnybrook, and his call came through at 8 o’clock at night.
“He said: ‘I have this fund called the Millennium Fund. I look for opportunities. And I see a high chance of you failing and a huge chance of you leveraging up’. He said he would loan us $200,000 in $50,000 tranches. We would not have survived if it wasn’t for that.”
Then followed a $2 million investment from French group Societe Generale, which provided Paladin with enough money to do a feasibility study of Langer Heinrich, which is one of its two uranium mines in Africa.
“We didn’t look back at all until Fukushima hit us, ” Mr Borshoff remembered.
The company has had to shed staff and cut the base salaries of managers by 10 per cent to survive the latest downturn.
Paladin made a loss of $US420.9 million ($448 million) in 2012-13, largely because of big writedowns on the value of its assets.
Mr Borshoff is confident that better times are ahead. He claims a strong underlying performance of its mines will help the company when uranium prices rebound.
If his experience shows anything, it is that change is inevitable.
HOW TO FLOAT A COMPANY
How does a company qualify for an ASX listing?
A company must satisfy either the profit or the asset test, as well as meeting requirements for liquidity, working capital, corporate governance and a spread of shareholders.
The profit test involves providing audited financial statements for the previous three years, showing an aggregated gross profit of at least $1 million, including $400,000 in the previous twelve months.
The asset test requires net tangible assets of at least $3 million, after the costs of fund raising, or have a market capitalisation of at least $10 million, based on the issue or sale price in the prospectus.
What is a prospectus?
A prospectus is a document which sets out the terms and conditions of the offer, and provides information about the company that investors require to make an informed decision, such as assets and liabilities and profits and losses. It is subject to due diligence and is lodged with the Australian Securities and Investment Commission.
What are the share offer alternatives?
There are two main methods, the most common being a fixed price offer, in which the price is usually released with the prospectus. An open price offer offers institutional investors a price range, and they make a legally binding bid.
Who is involved in listing a company?
A listing team typically includes accountants, lawyers and a corporate adviser to advise on such things as the listing price and the size and timing of capital required.
It can include an underwriter, who takes shares not taken up by the public for a fee.
How long does it take?
The offer period usually lasts three to four weeks, but it typically takes five months to get to that point. The process for bigger floats can take years.
How much does it cost?
The underwriting fee and broking fees for listing range from approximately 2 to 8 per cent of the amount raised. Other fees, including legal and accounting, normally range from $300,000 to $800,000 in total, but can be more than $1 million for bigger floats.
© The West Australian