Investing In Shares: A Comprehensive Guide To IPOs And ASX Listing Requirements

One of the most popular forms of investing is investing in shares. Shares may be bought in Initial Public Offerings (IPOs) as an initial subscriber, through a prospectus. These shares can later be sold on a stock exchange when those shares are listed.

 

Use the Medibank Private Limited prospectus in the course notes section of the myMIBT portal. Medibank Private Limited is making an IPO seeking to raise equity capital in Australia.

 

1. What is a prospectus and what are the major components within a prospectus? When a prospectus is issued, whom does it need to be lodged with in Australia?

2. What are three listing requirements for listing on the Australian Securities Exchange (ASX)? In what industry group would Medibank Private Limited be classified on the ASX?
    
3. Does the company intend on paying a dividend?  If so, when and how much? What are fully franked dividends?

4. What is the issue price per share and how much is expected to be raised from the IPO? Who will receive the proceeds from the share offer and how will the funds raised be used?

5. Distinguish between retail and institutional investors. Make use of the Medibank Private Limited retail and institutional offer to support your answer.

6. The offer to purchase shares in the Medibank Private Limited IPO is now closed. What would be the process to acquire shares in Medibank Private if you missed this offer.

7. Assuming your group bought shares in the Medibank Private IPO, do you think your decision was correct? Explain by comparing the information in the prospectus with the current market price on the ASX.

Requirement 2

Your group manages investment funds and your job is to advise clients on what portfolio best suits their needs, given their characteristics.

You have three different customer types:

I.    A young Deakin Commerce graduate (Mark) with a long and successful career ahead of him.

II.    A middle aged couple (Mr. and Mrs. Smith) who are high income earners. They plan to retire in 10 years time.

III.    An older member of the work force (John) who is hoping to retire in the next 18 months.

There are 3 different portfolio packages that you offer clients:

PORTFOLIO X:    40% bonds; 50% cash; 10% property.

PORTFOLIO Y:    40% shares; 40% bonds; 20% property.

PORTFOLIO Z:    80% shares; 15% property; 5% bonds.

Task is to answer the following questions by referring to your textbook, other finance books, the media, the internet etc.:

1. By using the information in TABLE ONE (page 4) calculate the expected (average) return, denoted by E(R), and the risk (standard deviation), denoted by σ, for each of the four asset classes as well as the three portfolios in Table One and include your answers in the table. The completed table should be submitted with your assignment.

Show ALL workings in the Appendix after the reference list. All final calculations should be correct to two decimal places (two numbers after the dot point) expressed as a percentage. The workings in the appendix may be hand-written.

2. Describe the features and important characteristics of each of the three portfolios in Table One. Include in your answer the meaning of a portfolio and a discussion of the expected return and risk of the three portfolios relative to the individual asset classes that comprise the portfolios. Use the results/numbers in Table One to illustrate.

3. For each of the three customer types that you have, recommend the most suitable portfolio option and justify your choice. Use language here that the customers will understand. You should use a graph here to show the historical return performance of each of your portfolios to assist with your recommendation.

Table One: Historical returns for the major asset classes

YEAR  TO	SHARES	PROPERTY	BONDS	CASH	PORTFOLIO	PORTFOLIO	PORTFOLIO
DEC.					X	Y	Z
1994	-8.7%	-5.6%	-4.7%	5.3%	0.21%	-­â€6.48%	-­â€8.04%
1995	20.2%	12.7%	18.6%	8.0%	12.71%	18.06%	19.00%
1996	14.6%	14.5%	11.9%	7.6%	10.01%	13.50%	14.45%
1997	12.2%	20.3%	12.2%	5.6%	9.71%	13.82%	13.42%
1998	11.6%	18.0%	9.5%	5.1%	8.15%	12.04%	12.46%
1999	16.1%	-5.0%	-1.2%	5.0%	1.52%	4.96%	12.07%
2000	3.6%	17.8%	12.0%	6.2%	9.68%	9.80%	6.15%
2001	10.1%	14.6%	5.5%	5.3%	6.31%	9.16%	10.55%
2002	-8.1%	11.8%	8.8%	4.8%	7.10%	2.64%	-­â€4.27%
2003	15.9%	8.8%	3.0%	4.9%	4.53%	9.32%	14.19%
2004	27.6%	32.0%	7.0%	5.6%	8.80%	20.24%	27.23%
2005	21.1%	12.5%	5.8%	5.7%	6.42%	13.26%	19.05%
2006	25.0%	34.0%	3.1%	6.0%	7.64%	18.04%	25.26%
2007	18.0%	-8.4%	3.5%	6.8%	3.96%	6.92%	13.32%
2008	-40.4%	-54.0%	14.9%	7.6%	4.36%	-­â€21.00%	-­â€39.68%
2009	39.6%	7.9%	1.7%	3.5%	3.22%	18.10%	32.95%
2010	3.2%	-1.1%	6.0%	4.4%	4.49%	3.46%	2.70%
2011	-10.5%	-1.5%	11.4%	5.0%	6.91%	0.06%	-­â€8.06%
2012	18.8%	33.0%	7.7%	5.0%	8.88%	17.20%	20.38%
2013	20.2%	7.1%	0.7%	3.0%	2.49%	9.78%	17.26%
E(R)

 

1.    A prospectus is a document that describes and issues. This includes the notice, circular, advertisement or the other such documents that invites the deposits form the public and invites offers from the public for the subscription or the purchase of the shares in or the debentures of the day corporate. The following are the main contents of the prospectus:

a.    The main object with which the company is formed with the names, addresses, description and the occupation of the signatories to the memorandum and the number of shares that have been subscribed by them

b.    The number and the classes of the shares along with the nature and the extent of the interest of the holders in the property and the profits of the company

c.    The number of the redeemable preference shares that are intended to be issued and the date of the redemption and where n such date has been fixed, then the period of the notice that is required for the redeeming of the shares and the method of the redemption that will be used

d.    The number of the shares, if any, that have been fixed by the Article as the qualification of the director and the remuneration of the directors for the service

e.    The names, occupations and the addresses of the directors, managing directors and the manager together with the provision of the Articles or the contract relation with the appointment remuneration or the compensation for the loss of office

f.    The time of opening the list of subscription

g.    The amount that is payable on application and at the time of the allotment of the share must be stated in it. In case, the prospectus is issued within the period of 2 years, then the details of the shares that have been subscribed for any allotment

h.    The particulars of any option or the preferential rights that are to be given to any person to subscribe for the shares or the debentures of the company

i.    The number of the shares or the debentures which within the period of 2 preceding years have been issued for the consideration other than cash

j.    The particulars about the premium that have been received on the shares within the period of 2 preceding years or are to be received

k.    The amount of the underwing commission or the arte thereof

l.    The preliminary expenses

m.    The names and the addresses of the auditors of the company

n.    Where the shares of more than one class have bene issued, then the rights of the voting and the rights as to the capital and the dividend that would be payable for each class of the shares

o.    In case, the reserves or the profits of the company have been capitalised, then the amount of and the amounts of the surplus from the revaluation of the assets of the company

p.    The reasonable time and the place at which the copies of all the books of accounts have been kept on which the report of the auditors is based and can be inspected.

(Palekar, 2015)

As per the regulation guide 56, Prospectuses, Stage 2, the lodgement and the registration, the ASC accepts the lodgement and considers the application for their registration as and when applicable.

 

(ASIC, 2015)

 

2.   The listing requirements of the country are tailored to support the companies that are in the early stage and the mature companies. The listing of the companies on the ASX could be completed using the Initial Public Offer in which the capital is raised at the time of the listing through the method of the compliance listing. The rules of the listing sets out the specific requirements that an organization is required to meet in order to list out the ASX market and is underpinned by the set of the principles so as to ensure the quality of the market that the ASX operates. In order to be eligible for the listing on ASX, the company must satisfy the minimum admission criteria and this includes the structure, size and the number of the shareholders.

(ASX, 2015)

The company belongs to the Australian healthcare industry.    

(ASX, 2015)

3.   The future shareholders of the company will receive an inaugural dividend of 4.9 cents for each share in September 2015. Medibank will also plan to pay the government a $42 million worth of final dividend along with the $196.8 million of special dividend.

(Australian.au, 2015)

Fully franked dividends are the dividends on which the taxes have already been paid. This means that the shareholders are entitled to the amount of the taxes that the company ahs paid.

(Monet smart, 2015)

The forecasted fully franked dividend up to 7 months is 4.9 cents per Share.

(Medibank Private Limited, 2015)

 

4.   The company will issue its share at the price of $1.55-$2 and intends to raise 2,754 million.

The Commonwealth will receive the proceeds of the Offer. None of the proceeds of the Offer will be received by Medibank Private

The Australian Government has announced that the proceeds from the sale of Medibank Private will be re-invested into productivity enhancing infrastructure through the Australian Government’s Asset Recycling Initiative.

5.   The institutional offers comprises of the invitation to bid for the shares that are made to the investors of the institution and includes the following:

a.    The institutions of Australia and New Zealand under the prospectus

b.    The institutions that come under the number of a selected international jurisdiction under the Institutional offering

c.    The brokers that elect to bid for the shares under the Institutional offer on behalf of their Australian and the New Zealand resident retail clients under the prospectus as the broker sponsored bids.

6. The retail offer under the prospectus comprises of the following:

a.    The holders of the policies that are open to the eligible policyholders that can apply for the shares at the retail price

b.    The offers that are extended for the employees that are open to the eligible employees so that they can apply to the shares at the retail prices

c.    The offer of the broker firm that is open for Australia and New Zealand resident clients of the retails

d.    The general public offer that is open to the Australian retail investors and comprises of the invitation so as to apply for the shares at the retail prices.

e.    From stock exchange.

f.    The current market price of the share is $2.40. Yes, since even if the share is sold, the profit of $0.25 or $0.40 can be earned as the share was bought for $2.15 or $2 and can be sold at $2.40.

(ASX, 2015)

 

1.    The following are the required calculations:

		Historical returns (in %)
Particulars	Year	Shares	Property	Bonds	Cash	Portfolio X	Portfolio Y	Portfolio Z
	1994	-8.7	-5.6	-4.7	5.3	0.21	-6.48	-8.04
	1995	20.2	12.7	18.6	8	12.71	18.06	19
	1996	14.6	14.5	11.9	7.6	10.01	13.5	14.45
	1997	12.2	20.3	12.2	5.6	9.71	13.82	13.42
	1998	11.6	18	9.5	5.1	8.15	12.04	12.46
	1999	16.1	-5	-1.2	5	1.52	4.96	12.07
	2000	3.6	17.8	12	6.2	9.68	9.8	6.15
	2001	10.1	14.6	5.5	5.3	6.31	9.16	10.55
	2002	-8.1	11.8	8.8	4.8	7.1	2.64	-4.27
	2003	15.9	8.8	3	4.9	4.53	9.32	14.19
	2004	27.6	32	7	5.6	8.8	20.24	27.23
	2005	21.1	12.5	5.8	5.7	6.42	13.26	19.05
	2006	25	34	3.1	6	7.64	18.04	25.26
	2007	18	-8.4	3.5	6.8	3.96	6.92	13.32
	2008	-40.4	-54	14.9	7.6	4.36	-21	-39.68
	2009	39.6	7.9	1.7	3.5	3.22	18.1	32.95
	2010	3.2	-1.1	6	4.4	4.49	3.46	2.7
	2011	-10.5	-1.5	11.4	5	6.91	0.05	-8.06
	2012	18.8	33	7.7	5	8.88	17.2	20.38
	2013	20.2	7.1	0.7	3	2.49	9.78	17.26
Expected return		10.505	8.47	6.87	5.52	6.355	8.6435	10.0195
Standard deviation		16.8879	18.7136	5.5771	1.24201	3.135143537	9.543115464	15.55949757
Portfolio:	X	Y	Z
Expected return	6.355	8.644	10.018
Standard deviation	4.7232	12.7287	16.5962

2. The portfolio for an investment is the collection of the assets that are owned by an individual or the institution. The portfolio of an investor could include the real estate that are sometimes called hard assets. But most of the portfolios that exist today are assembled so as to pay for the retirement and are mad up of the securities such as the stocks, bonds, and mutual funds. Money market funds and the exchange traded funds. The best retirement portfolios consist of a range of the cautious US treasury bonds that are zipped to the stocks of the small companies as a part of the effort to dampen the losses of the market and to maximize the potential gains.

(Money control, 2015)

Risk is defined as the degree of the volatility of the returns on the portfolio and is measured by the standard. For example, the portfolio that has a higher risk will increase faster in the faster markets when compared with the bad markets.

Return is the growth rate of the portfolio. The irks and return must be considered together since some of the investors consider higher returns but are willing to take less risk and some are willing to take more risk for a lesser amount of return.

(BNL, 2015)

In respect of portfolio X, 40% bonds; 50% cash; 10% property is invested. If the investment is made in the US bonds, then it is entails 0 risk but then the return is also less. Cash will always remain exactly the same since a $10 note will remain as it is now. Property is a volatile market. This portfolio entails a lesser amount of return coupled with a lesser amount of return as well.

In respect of portfolio Y, 40% in shares; 40% in bonds; 20% in property. This is considered to be riskier when compared with the portfolio X but then the return is also less when compared with the portfolio X.

In respect of portfolio Z, 80% shares; 15% property; 5% bonds. This portfolio has the maximum return coupled with the maximum amount of return.

 

3. There are many people that are successful at each and every stage of investing. Actually, there are the following types of the investors:

a. Savers: these are the investors that spend the majority of their life in saving so as to ensure that they have a stable and a happy retirement. These are the people that diversify their investment by investing in the different types of the assets. They indulge in the hedging of the investment with the other non-co-related investment and then ultimately, start generating an annual return in the range of 3 to 4%. These people save money and seek for the low risk of the capital and return that is willing to accept the relatively lower rate of the return. The saver follows the policy of investing all his money in the certificate of deposit and they usually go for the long term financial stability instead of taking the risks so as to benefit from it. These types of the investors are suitable for the portfolio like that of X with 6.355% of return and 4.7232% risk.

b. Speculators: the speculators are the people that take control over their investments and solely aim at their financial independence. They are the ones that are happy for forgo the lower rate of the returns of a diversified portfolio so that they can achieve the higher rate of the returns. They like investing their money in the stocks funds, funds of the real estates and other such categories. They have the higher rates of the returns than the savers and are willing to do and try to take the risks so as to get those returns. They do not hesitate in investing money in the options account and the derivatives account for trading. They are much like gamblers who like to invest their money just as they are. Such types of the investors would be happy with the portfolio Y with 8.644% of return and 12.7287% of risk.

c. Specialists: then there are the specialists that believe in investing in the classes of the assets among the various ranges. But they do know the fact that they need to invest their money at the right time and in the right securities. The specialist are the people that pick up one area and then invest in that area and gain a lot of experience so that they become an expert in it. Some of the people invest in the paper assets whereas the other deal in real estate and some even start the businesses. The people know the area of their investment inside and out and they just keep on entering and exiting the investments. For such people, the best investment will be portfolio Z with the maximum return of 10.018% and with the maximum risk of 16.5962%.

(Three types, 2015)

 

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