Onevue Holdings Ltd (ASX: OVH) has seen its share price plunge 13.5%, after the funds management software provider issued $12.5 million shares to institutional investors at a large discount to the last closing price.
Existing smaller shareholders have been snubbed, with Onevue offering them just $2.5 million worth of shares through a share purchase plan (SPP). I suppose at least the company has offered existing shareholders a chance to buy shares at the same discounted price (68 cents) as institutions. But they will be limited to subscribing for a maximum of $15,000 worth of shares, regardless of whether they own 1 share or 100,000.
What is even more galling is that shares in the placement were offered to institutional investors who previously had no shares in the company. Why should they get special treatment over existing shareholders?
We have long argued that the fairest way of raising capital is via a pro-rata renounceable rights issue, especially if the company doesn't need the funds immediately – such as in Onevue's case.
The company says the net proceeds will be used for working capital requirements, strengthen the balance sheet, provide flexibility to make acquisitions and repay $1.5 million of its ANZ debt facility.
Not one of those really required the company to rush out and raise capital in a few days.
If smaller companies want to know how to raise capital fairly, there is one company that has consistently stood out from the crowd. Corporate Travel Management Ltd (ASX: CTD) has raised capital twice in the last two years, both times using a rights issue, and both times for substantial acquisitions.
Foolish takeaway
Onvue management gains a black mark in my books for this unfair placement and SPP. Investors need to be wary of companies treating their retail shareholders like second-class citizens.
