A month later, the 20.2 million entitlements shortfall from the retail offer were successfully auctioned at an even more handsome $6.45 apiece.
The offer document shows Fletcher paid a 2 per cent fee for having the issue underwritten, a cool $15m that merchant bank Macquarie pocketed for what looks like little risk. It also charged another 0.6 per cent in other fees – in case that doesn't look like much, that's another $4.5m.
Or take Steel & Tube's $80.9m placement and rights issue. The one-for-1.9 rights issue was priced at $1.05 a share while institutions had to pay a higher $1.15 per share to participate in the $20m placement.
In both cases, that was a discount of well over 20 per cent to the $1.46 price the shares traded at ahead of the announcement.
Steel & Tube says it paid First NZ Capital 1.25 per cent all up for the underwriting fee and 2 percent in total, or $1.6m.
Both companies were raising capital to shore up their balance sheets after periods of poor to abysmal performance, but alongside the Fletcher issue, and taking into account its much larger size, Steel & Tube could be thought to have got a bargain basement price.
But there seems to be no such thing as a "going rate" for underwriting, although most will entail similar amounts of work, regardless of size.
Obviously, larger companies such as Fletcher will require more work because of their international shareholder base.
But TeamTalk was charged the same 2 per cent underwriting fee for its very tiny recent $8.7m capital raising – although it was also charged another 3 per cent to cover Forsyth Barr's other work in managing it, so $435,000 in total.
That raising was another instance of differential pricing as institutions paid 75 cents per share for the $2m placement, just a 6.3 per cent discount to the last on-market price, and shareholders were offered their new shares at 65 cents, an 18.8 per cent discount, in the one-for-three rights issue.
And it looks like Forsyth Barr earned its money in that case: shareholders took up 81 per cent of the rights issue and the underwriter had to pick up the 1.9 million shares they didn't subscribe for.
Then there's Seeka's $50m one-for-1.5 rights issue to shore up its balance sheet and to provide funds to pursue its ambition to become New Zealand's leading orchard-to-market business.
That was priced at $2.45 per share, a 25 per cent discount to the previous closing price.
First NZ Capital charged 1 per cent to underwrite the issue and another 1.75 per cent for arranging it, so $1.38m all up.
Geo's $2m placement and $1.63m rights issue was the only recent capital raising that wasn't underwritten.
Chair Roger Sharp says he couldn't find a broker to manage it so his own firm, North Ridge Partners, which owns 33.2 per cent of Geo, had to do it and charged 6 per cent, or $217,800.
"The CEO – Kylie O'Reilly - and I went on a pre-funding roadshow to tell our story" and about the plan to turn around Geo's fortunes. They were then pleasantly surprised by willing investors urging the company to do a placement, he says.
The subsequent one-for-four rights issue was keenly sought. Both the placement and rights issue were done at 15 cents per share, a 22.1 per cent discount to the 30-day volume weighted average ahead of the placement.
The lack of underwriting didn't prevent the company from raising all the money sought – the 1.2 million shortfall of the 10.6 million shares sold in the rights issue were all mopped up by a shortfall facility, similar to what most issues have these days, at a premium of 18 cents per share.
"No one will underwrite these days until they have demand lined up," Sharp says, confirming the impression that merchant bankers are taking little risk.
So how exactly do merchant bankers arrive at their charges?
More than one company says – off the record, of course – that they're price-takers and that their arranger will quote them an all up fee that they'll have to pay regardless of whether their capital raisings are underwritten.
So they might as well have the underwriting.
The merchant bankers themselves are coy on the subject. "It's not something we talk about, I'm afraid. It's a private matter between us and our clients," says one, adding that every deal is different.
Another says that what the money is being raised for is a key factor – shoring up a damaged balance sheet, as in the cases of Fletcher and Steel & Tube, is clearly a rescue mission, not a way to fund growth or an acquisition, as in the case of utilities software company Gentrack.
Gentrack's $90m rights issue was to fund its purchase of the Evolve business.
Deutsche Craigs and UBS charged it 2.25 per cent, or just over $2m, for the underwriting. The company won't say how much the other arranging charges were, even though it will be obliged to disclose that information when it releases its annual results in a week or so.
Gentrack's one-for-5.77 rights issue was priced at $6.19 per share, an 11.6 per cent discount to the $7 share price the day before the announcement.
The institutional shortfall of Gentrack's offer was auctioned for $6.69 per share and the retail shortfall at $6.84.
Clearly, Gentrack didn't need to discount its offer as much as Fletcher and Steel & Tube had to, but did it need the underwriting?
Heartland Group is another example of raising capital to fund growth; its $59.2m one-for-15 rights issue in December last year, unusually, wasn't underwritten.
"Given its size and use of the proceeds, Heartland didn't consider underwriting provided value for shareholders," the bank told investors.
It was sure of getting at least 15 per cent of the new funding sought because its directors and related parties owning that amount of shares committed to take up their rights in full.
But its discount to where the existing shares were trading was skinnier than any of the other examples, at 10.1 per cent.
In the event, 82 per cent of the rights to buy shares at $1.70 each were taken up and the company auctioned the shortfall and got $2.02 per share, demonstrating there was no lack of demand.
But it also seems to give the lie to suggestions merchant banking fees will be the same, regardless of whether an issue is underwritten.
The cost of the issue was $910,000, and presuming all of that was paid to First NZ Capital, that would amount to 1.75 per cent of the funds raised.
