Warning on dilutive raisings
The Australian Securities and Investments Commission has warned boards that law reform might be needed to protect retail investors after $38 billion in capital raisings discriminated against small investors last financial year.
Retail shareholders argue they have had their interests heavily diluted in capital raisings by companies such as National Australia Bank, Asciano, Elders, Sigma, ConnectEast and Transpacific Industries.
ASIC commissioner Belinda Gibson told a conference on corporate finance in Sydney yesterday that the regulator was carefully monitoring the debate.
"There is no legal requirement that new shares must be offered first to shareholders, unlike in the UK . . . however, directors are obliged to have regard to the interests of the company as a whole and this includes having due regard to the diluting impact on existing shareholders.
"ASIC will continue to closely monitor market developments in relation to how companies deal with the issue of diluting the holdings of existing shareholders, to see if law reform is required," Ms Gibson said.
Last financial year, placement offers - a simple way to raise capital but the most unfavourable for retail investors - made up 43.4 per cent of all capital raised, or $38.2 billion.
Rights issues made up 32.4 per cent, or $28.5 billion of capital raised, while share purchase plans raised just 4.3 per cent or $3.8 billion.
Ms Gibson said the best way of ensuring retail and institutional investors were treated equitably was a rights issue, but conceded that this approach may not have been practical for all companies during the peak of the crisis.
"It really depends on their financial position, the circumstances of the company and circumstances of the market."
"The considerations for directors [during the crisis] were quite different than they are now, when there seems to be greater stability and perhaps more time available for the traditional way of preserving people's positions, which is a rights issue."
Ms Gibson said the regulator was also reviewing measures to encourage retail bond issuance, which is expected to include the removal of regulatory impediments to capital raisings and a reduction in documentation to facilitate debt raisings.
"We are in discussions with a number of players in the market about this question of debt raising . . . and the importance of a retail debt market," she said, adding that an announcement would be made before the end of the year.
The AFR revealed on October 16 that ASIC was considering measures to simplify the requirements of a retail bond prospectus by improving guidance on what companies are required to disclose.
Federal Treasury is concerned that companies are infrequently marketing their bonds to retail investors because of the expense of a prospectus and restrictions on investors onselling the bonds.
Ms Gibson said ASIC was also looking at ways to simplify annual reports. "The information provided in relation to these matters is sometimes so formulaic that it communicates very little to the reader," she said. "The analysts' briefings to investors released with the annual results are often more informative in this regard."
KEY POINTS
Retail shareholders have been heavily diluted in capital raisings.
The law may need changing to protect retail investors, ASIC says.
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