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Don’t let the ASX take your rights!

The ASX is hoping third time lucky as it yet again tries to implement changes to dilution limits that will marginalise retail investors and trample their ownership rights.

The ASX is proposing to increase the annual dilution limits for all ASX ex-300 stocks from 15 per cent to 25 per cent. We find this to be an outrageous proposal and encourage all investors to make a submission to the ASX, ASIC and the relevant minister (Bernie Ripoll) on this issue.

The Motley Fool has long been a champion of the individual investor – both in the US and now in Australia. We’re believe this proposal is not in your best interest, and we hope you’ll join us in fighting it.

25% is Outrageous

The proposed changes to ASX Listing Rule 7.1 would allow companies to dilute shareholders’ interests by a further 10 percent, on top of the existing 15 per cent annual limit. Worse yet those new shares can be offered at a whopping discount of up to 25 percent.

Companies will now be able to say to faithful shareholders, not only are we going to dilute your ownership, we’re giving shares to our mates at 25% discount. But hey, don’t worry, the ASX say it’s OK!

We are NOT Muppets

The ASX clearly has no respect for retail shareholders and must consider us Muppets. Now is the time to fight back and say NO to this outrageous proposal.

These changes could facilitate changes of control without shareholder approval. This proposal would make it possible for a single shareholder to go from 0 to 23 per cent ownership in six months, without shareholder approval. With 19.9 per cent of those shares issued at a 25 per cent discount to the market price!

Twenty per cent is considered as the control threshold in Australia.  At present it is not possible to go from 0 to 23 percent without shareholder approval in less than 15 months; it could now happen in six months.

Friend or Foe

This proposal also gives management and their advisors much greater capacity to punish ‘troublesome’ shareholders and reward friendly ones. Consequentially the already too powerful rent seekers (financial sponges) such as investment banks will have even greater power.

Existing ASX related party controls are very weak so the changes would increase the potential for abusive issues to entities that are not technically related parties. As an example, an 11 per cent shareholder with an executive sitting on the board is not considered a related party for the purposes of the Listing Rules.

As an example of the present scope for abuse, both Macarthur Coal and Cash Converters International (ASX: CCV) in the past two years were able to issue large slabs of equity to major shareholders without prior shareholder approval. The only limits were those imposed by the Corporations Act provisions that limit increases above 20 percent to 3 percent every six months without shareholder approval.

Foolish Bottom Line

Please raise your voice on this issue if you think shareholder rights matter (hint: they do). You can email the minister at bernie.ripoll.mp@aph.gov.au to encourage him to stamp out this audacious bid by the ASX to trample our shareholder rights. You can also let the ASX know your opinion — politely — at regulatorypolicy@asx.com.au.

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The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool’s disclosure policy.

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