FUND managers and analysts have different opinions on whether listed Malaysian companies should be allowed to issue new shares above the maximum 10% of their total issued and paid-up share capital.
This was one of the proposals raised when the Securities Commission (SC) and Bursa Malaysia met with various focus groups, including the Minority Shareholder Watchdog Group (MSWG), recently to discuss ways to improve the competitiveness of the equity market.
According to a source present at the meeting, the proposal to allow the placement of new shares, possibly up to a maximum of 20% of a company’s total issued and paid-up share capital, was well received by most companies.
He said the companies felt it was timely for regulators to approve the proposal as it was in line with what was being practised in developed stock exchanges, including those in Singapore and Hong Kong.
Hovever, he said it was too early to say if this proposal would be approved as the issue was still at the consultation phase.
“Nevertherless, it’s worthwhile to discuss the pros and cons of such a move and its impact as not every party likes the idea,” he told StarBiz.
This proposal, along with other initiatives, are currently been explored by Bursa and the SC in an attempt to revamp the stock exchange to be more vibrant and attractive to investors, both local and foreign.
Modifications are also necessary as Bursa’s move to unify the main and second boards would require changes in rules and regulations, especially on listing guidelines for companies.
OSK Research Sdn Bhd associate director Chris Eng said the current 10% cap on issuance of new shares should be adequate.
“We don’t see a need for an increase. Even now there are only a few companies on Bursa that exercise this option to the limit,” he said, adding that if a company needed to raise funds it should initially look at undertaking a rights issue to benefit existing shareholders.
Eng also said shareholders, especially minority shareholders, may not want the company to undertake a share placement, without their approval, as the exercise would dilute their shares.
“A lot would depend on the company’s reason for issuing new shares,” he said, adding that capping the ceiling at 10% was a way to protect stakeholders’ interest.
While other stock exchanges might have liberalised their exchanges on this issue, it did not mean that Malaysia should follow, Eng said.
Another research head from a brokerage firm has a different opinion.
He said the move to increase the issuance of new shares, even to a maximum of 20% of the total issued and paid-up share capital of a company, without shareholders’ approval, would be acceptable so long as the company could justify its actions in the interest of shareholders.
“In some stock exchanges in Europe, the ceiling is even over 50% and shareholders are not complaining,” he said, adding that it reflected the maturity of shareholders, regulators as well as the corporations.
The research head said by and large most companies try to do the right thing to enhance their financial performance.
“While there will be some rogue companies, regulators should not hold back the rest through regulatory restrictions, if they want to raise capital or undertake a merger or acquisition, via new shares to expand their businesses, and especially if these companies have a good track record,” he noted, adding that “this would be akin to punishing everyone (from accessing funds) just because of a few bad ones.”
“If there are any bad ones they would be ultimately detected by Bursa and the SC’s tight monitoring and stringent rules and regulations in time,” he said.
MSWG chief executive officer Rita Benoy Bushon said in allowing a cap of over 10%, it was imperative that the interest of stakeholders, especially minority shareholders, was not sidelined.
MSWG was neither in opposition nor in favour of regulators raising the limit, she said.
“What we are concerned is that if changes are to be made it must be in the interest of shareholders,” she said, adding that it should also entail greater transparency and accountability of the companies issuing new shares,”
“Shareholders must know the reason for the company’s placement of new shares and how such an exercise would enhance the company’s performance to benefit existing shareholders.”
Bushon acknowledged that many developed stock exchanges had successfully liberalised their stock exchanges through this move to raise more funds from the capital markets.
“But this may or may not be the right way forward for Malaysia,” she said, adding that a lot would depend on whether corporate Malaysia, shareholders and investors were mature and ready for the change. For latest Bursa Malaysia indices, charts and other information click here Latest business news from AP-Wire
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