By Eric Johnston
THE Australian Securities Exchange is considering clamping down on rules surrounding capital raisings.
The rules enable investors to exploit a loophole during heavily discounted rights issues that often delivers windfall gains at the expense of long-term shareholders.
The push is part of a broader ASX review into procedures surrounding capital raisings after Australian companies tapped shareholders for a record $90 billion over financial 2009.
While the new funds have allowed companies to bolster their balance sheets in the face of the economic turmoil, concerns have spread that the structure of many of the raisings has benefited large institutional shareholders at the expense of smaller retail investors.
This has been through retail investors having their existing shareholdings diluted or in some cases being shut out from new placements.
''Boards must realise the importance of retail shareholders … it seems to us at the moment that it is the right way to go to ensure there is adequate protection for the retail shareholders,'' said ASX chairman David Gonski.
Of key interest is a process used by companies ranging from Asciano to Wesfarmers that offers a window of several days between announcing a rights issue and the cut-off for shareholders to qualify.
This allows new shareholders to take advantage of discounted capital raisings mostly at the expense of longer-term investors. Building-materials interest Brickworks had a deluge of new investors after it announced details of a share purchase plan late last month, but gave five days for shareholders to qualify.
This allowed new investors to move on to the registry, entitling them to buy hundreds of new shares often at a 7.5 per cent discount to existing prices.
But Brickworks had to close the window earlier than expected when its shareholder base ballooned from just over 3000 to more than 10,000. The increased base is expected to result in longer-term investors having their application reduced when shares are allotted early next month.
Others that have left a window open on rights issues and have experienced a jump in shareholder numbers include Wesfarmers, which added more than 30,000 in a short period following its $1.7 billion retail capital raising this year.
On the smaller end, Macarthur Coal's investors swelled by more than a third in the few days when it outlined details of its $62 million share purchase plan in July.
However, Mr Gonski cautioned against becoming too prescriptive when it came to capital raisings, saying there should be enough flexibility for companies to move quickly to secure fresh funds.
''The retail shareholder should be given a fair go, but if it's a question of that or going broke because you haven't got capital, one would assume the requirement to get the money pervades,'' Mr Gonski said.