Diagnostic imaging firm Capitol Health Ltd (ASX: CAJ) has thumbed its nose at its loyal retail and smaller shareholders, electing to exclude them from a 10% discounted capital raising.
We have noted many times before that companies raising capital via institutional placements are not treating their existing shareholders fairly. While management will argue that they raised funds through a placement because it's fast and cheaper, it's also dilutive and unfair to existing shareholders.
Corporate Travel Management Ltd (ASX: CTD) recently raised capital through a pro-rata, renounceable rights issue – allowing all shareholders to participate fairly. We still believe that is the best way to raise capital.
In Capitol Health's case, we still see no reason why the company couldn't have raised funds via a fairer rights issue. The acquisition is expected to complete by 30 April 2015 – that's four months and more in future – giving Capitol Health plenty of time to conduct a pro-rata rights issue.
Management of the diagnostic imaging company have declined to announce a Share Purchase Plan (SPP) for smaller shareholders either, which would at least give them the same opportunity to buy discounted shares like institutions have. Speaking to managing director John Conidi earlier this afternoon, Mr Condidi said that the company needed certainty over funding for the acquisition, and as such was likely the main reason the board decided a placement was the way to go.
I should note that as the largest shareholder in the company with more than 30 million shares, Mr Conidi is in the same boat as existing investors, and will see his shareholding diluted.
I still have to disagree with Capitol Health's institutional only placement, despite understanding the company's rationale for heading down that route. Yes it makes business sense – but that doesn't mean its fair, especially without an SPP to follow.
As such, it's a black mark against the company in my books – and no doubt many other retail investors feel as disappointed as I.
