Following on the heels of Retail Food Group (ASX: RFG), Sirius Resources (ASX: SIR) and Tiger Resources (ASX: TGS) have become the latest two companies to dilute retail shareholders with placements to institutions.
The best thing that can be said is that at least Tiger and Retail Food Group have offered a share purchase plan to minority investors. Sirius on the other hand, has completely snubbed its smaller shareholders, with no share purchase plan, following its $83.5 million placement at a price of $2.44 per share. One consolation for mum and dad investors is that Sirius's placement was done at less than a 5% discount to the trading price.
But still, retail shareholders will see the number of shares issued climb from 227.8 million to more than 261 million, and their share of the company just got that little bit smaller.
The Australian Shareholders Association (ASA) has taken note of Tiger Resources dilution of retail shareholders, and the company could face a protest vote at a general meeting in early December to approve the issue of more than 15% of the company's limit on new shares.
Uranium miner Paladin Energy (ASX: PDN) also faces a protest vote against both its chairman and CEO, who have both been on the company board for around 20 years. The ASA says the company has never paid a dividend since it started trading in 1994, and has reported billions of dollars of losses, over the same period. Proxy adviser ISS and the ASA are likely to join forces and vote against a dilutive share placement that Paladin made in August.
While companies do occasionally need to raise capital, and that is the primary reason for the stock exchange, treating all shareholders fairly seems to back of mind for some boards and directors. While the ASX argues that a placement is the fastest and generally cheapest way for companies to raise capital, there needs to be a trade-off between speed and treating all shareholders equally.
The ASX has recently implemented a new process, called BookBuild that allows companies to raise capital not just from institutional investors, but retail shareholders as well. However, Commsec, Australia's largest online broker, with an estimated 40% plus share of the retail market, has yet to allow investors using its platform to participate in bookbuilds.
Foolish takeaway
While the ASX appears to have taken steps to make raising capital fairer, minority investors are still sceptical that this process is nothing more than a token offering. More work needs to be done by the ASX and the corporate regulator, the Australian Securities and Investments Commission (ASIC) to protect the rights of smaller investors.
