Updated: Aug 5, 2020
Investors have a variety of methods available to them when trading and investing on the Australian Securities Exchange (ASX). Applying for excluded Private Placement offers is an avenue of investing which is never really considered by most investors. You may have heard about Private Placements offers from ASX company announcements, but have you ever taken the time to investigate it further. We will show you how it could be possible, for you to access these excluded and sometimes lucrative offers.
A Private Placement in relation to the Australian Stock Market is the sale and issue of securities directly to a private investor, rather than as part of a public offer such as an Initial Public Offering (IPO) to retail investors or a secondary on-market purchase using a full service or discount stockbroker. This type of offer is made to a small group of accredited investors such as Sophisticated, Institutional and Professional Investors as defined by 708 of the Australian Corporation Act.
The purpose of a Private Placement is to raise money, for a company by issue of new shares. The reason for raising new funds could be for working capital, acquisition, capital investment, expansion, retire debt or reduce balance sheet gearing. There are multiple reasons why a company may want to raise funds. It is common practice, but does not happen all the time, for a company to offer new shares at a discount to market price.
Private Placements are excluded offers that do not need a disclosure document, such as a Prospectus lodged with the Australian Securities and Investment Commission (ASIC). Section 708 of the Corporations Act provides the different categories of investors who may access these excluded offers. The relevant main parts of the Corporations Act that we will focus on and would be of interest to most readers of this article are the Sophisticated Investor and Offers through a Financial Adviser sub-sections. There are also the Professional Investors, Small Scale and Personal offer sections of the Act, but your broker most probably will not take those into consideration before potentially offering you an allocation in an excluded offer.
The basic definition of a Sophisticated Investor is a person who has Net Tangible Assets exceeding $2.5 million Australian dollars, or has gross income for each of the last two years of at least $250,000 Australian dollars. A qualified Accountant must certify that the individual or entity satisfies this criteria and this certification must be initially no more than six months old. Another way an entity can satisfy the requirements as a Sophisticated Investor is to invest at least $500,000 in the company seeking funds.
Alternatively, where an offer to an individual or entity is made through an Australian Financial Services Licence holder and that securities dealer is satisfied on reasonable grounds that the person to whom the offer is made has previous experience investing in securities, then that investor could be eligible to participate in an excluded offer. The investor must demonstrate to the securities dealer by way of a questionnaire that they can assess: the merits of the offer, the value of the securities, the risks involved in accepting the offer, their own information needs, and the adequacy of the information given by the person making the offer. An Australian Financial Service License authorised to deal in securities should have procedures and questionnaires in place to discover if the applicant qualifies as an Experienced Investor. If you consider yourself an experienced share market investor or trader, then you can request to be considered under 708(10) of the Corporation Act to gain possible access to any Private Placements offers that your broker may offer to its clients. This process sounds daunting, but I can assure you it is very quick and straight forward.
After satisfying the requirements as an Experienced Investor, the financial services firm will issue you with a written statement detailing their reasons why you are eligible. The investor will be required to sign this statement along with an additional written acknowledgment stating that no disclosure document was received in relation to the individual offer being presented. These documents will have to be completed at the time or before any official offer is made.
A few Australian financial service firms or companies raising new equity capital may decide to offer new shares to investors who are classified as sophisticated or professional only, but not offer shares to investors who are classified as experienced. This is most probably due to those groups being overcautious, which is understandable because the financial services industry is highly regulated. You could find that a full service financial adviser may not give you investment advice in relation to a Private Placement offer, because they will consider that you can determine what investments best suit your own particular needs and objectives.
Titan Securities is an Australian owned and operated financial services company. We have been operating for over twelve years backed by twenty-one years experience dealing in Private Placements, Initial Public Offerings, retail investment advice and other relevant financial services. If you wish to potentially access new Private Placement offers, please visit: www.titansecurities.net/marketplace and register your details. We are more than just a subscription and notification website, we offer a personalised service and are always available to have a friendly chat with our clients and new potential clients.
Matthew Corica is a full-time private trader and Adviser at licensed research and investment firm Titan Securities Pty Ltd | AFSL: 307040.
This article has been written for educational purposes only. If the reader wishes to trade or invest in any financial market due to this article, then to satisfy any unforeseen disclosure obligations of the writer as an Australian Financial Services Licence holder, please refer to our standard risk disclaimer located at www.titansecurities.net/disclaimer