Issuance underwriting fees skyrocket

Top companies conducting share issues must ensure they oversee the capital raising process to avoid paying too much in underwriting fees.

Research from the Australian Council of Superannuation Investors (ACSI) has found that companies are paying more than twice as much in rights issue underwriting fees than benchmark modelling suggests the service should cost.

It suggests that company directors need to understand the model used by the underwriter in order to determine its fee and whether the premiums associated with the service are appropriate.

This is particularly important given their duty to ensuring the best outcome for shareholders, who inevitably foot the bill, said ACSI’s CEO, Gordon Hagart.

The results show that over a period of three years, companies have in aggregate paid underwriters, typically investment banks and stockbroking firms, a premium of more than $170 million, approximately $2.7 million per raising above the theoretical value of the risk.

It also emerged that average underwriting fees are more than 60 per cent higher than 20 years ago despite market innovations having dramatically reduced the time required to complete a rights issue, thereby decreasing underwriting risk. 

For a full copy of the research please click here.