Last Tuesday, KNM Group Bhd shareholders rejected its proposal to raise RM167.9 million via a private placement of up to 987.52 million new shares, amounting to 30% of its share capital. At an extraordinary general meeting (EGM), 163 shareholders owning 333.94 million shares, representing 62.18% of shares voted, said “no” to the resolution.
Earlier in April, M3 Technologies (Asia) Bhd shareholders also rejected a proposed private placement by the company involving 232.15 million shares, or 30% of its share capital, to raise RM9.82 million. In terms of percentage of shares voted, 65.67% voted against the resolution, while 34.33% were in favour.
It has not gone unnoticed that there has been a marked increase in private placement activities on Bursa Malaysia since last year, as companies take advantage of ample liquidity in the market to raise cash by selling shares to pre-identified investors.
Generally, a private placement exercise is deemed to be earnings-dilutive for minority shareholders, as they are not included in the fundraising process. There is also the risk of future speculation, and minority shareholders are put at a disadvantage as they often do not know whom the shares were placed out to.
While it is not publicly known why shareholders of KNM and M3 Technologies rejected the proposed private placement exercises, their actions speak well for shareholder activism.
Minority shareholders should be more active in voting at shareholder meetings as it affords them the opportunity to influence the outcome. If you think a particular private placement exercise is earnings-dilutive and unfair to you, you should go out and vote, or at least let your voice be heard in the EGM.
Having said that, when a company, whose major shareholder controls more than 50% of the shares, decides to place out placement shares to independent third-party investors, minority shareholders can do little to block the resolution if the major shareholder is for it.