NAB's rod for its own back

The National Australia Bank is set to reveal the results of its share purchase plan offered to retail investors on Wednesday, after issuing $3 billion worth of shares to institutions at a placement price of $14.15 in April.

NAB's initial offer to retail shareholders is just $500 million, despite around 570,000 retail shareholders owning close to half the bank.

If all the retail shareholders took up their rights to apply for $30,000 worth of shares at an 8.4 per cent discount to last Friday's closing price then NAB would have around $17 billion worth of applications on its hand.

The $500 million set aside is only 3 per cent of that amount. As it stands the institutions will get six times more discounted shares than retail shareholders, despite the even split between the two groups on the register. The bank has also paid $39 million in underwriting fees to Goldman Sachs and Macquarie for getting the instos' fill away.

Luckily, NAB has reserved the right to scaleback or upsize the retail offer, but its decision to pay a 30 cents per share interim dividend on July 3 gets stranger given the pressure to upsize the offer or deliver one of the greatest cash scalebacks ever.

The interim dividend payment equals more than $865 million of cash NAB apparently needs potentially going out the door. While it brings cash through the door by issuing new shares at a price less than its tangible book value per share.

NAB is not the only blue-chip boardroom to have created a rod for its own back by paying dividends at the same time as raising money.

Cochlear, under some political pressure, recently upsized its deeply discounted retail offer to shareholders from $50 million to $220 million. While on Monday, Ramsay upsized its retail raising by 50 per cent to $300 million, after receiving applications from 52 per cent of eligible shareholders worth an average $16,596 each.

Back in 2015, NAB raised $5.5 billion at $28.50 per share, with $2.7 billion offered to institutions and $2.8 billion raised under its retail entitlement offer in a proportionate reflection of its share register.

This time around the bank appears to have left itself something of a prisoner's dilemma: seriously upsize the raising in the interests of fairness and issue more shares at a discount to book value, or refuse in the interests of the bank and sell a significant proportion of its shareholders down the river.

Watch this space.