Retail shareholders still treated unfairly

You’d think that ASX-listed companies and their boards would have gotten the message by now.

Retail shareholders are sick and tired of investment banks and brokers taking large fees for institutional placements, diluting retail shareholders and favouring their institutional clients.

Earlier this week it was Vocus Communications (ASX: VOC) issuing 11.9 million shares at a 10% discount to the last trade price, to raise $48.7 million in capital. The shares were issued to new and existing institutional shareholders, while retail shareholders have been left out in the cold. No share purchase plan was announced, and retail shareholders have seen the value of their shareholding eroded by 15%. As a shareholder in Vocus, I’m deeply unimpressed.

I’m still amazed that favouring large institutions and so-called ‘professional’ investors through institutional placements is allowed, given it does not treat all shareholders equally.

And then we have Ruralco Holdings Ltd (ASX: RHL), which raised $43.8 million through a fully underwritten non-renounceable pro-rata entitlement offer. Around $6 million of shares not taken up by retail shareholders were allocated to investment bank UBS and other underwriters.

As Australian Shareholders’ Association’s Stephen Mayne tweeted, “Ruralco should have allowed retail first bite at these shares, or sold through ASX Onmarket Bookbuild.” He added, “By limiting ‘overs’ to just 50% of an investors entitlement, UBS and the Ruralco board deliberately diluted retail.”

Now CEO John Maher has told Mr Mayne that Ruralco paid UBS ‘a lot of money’, and agreed that Ruralco was poorly advised on ‘overs’.

Maybe Ruralco needs to find another advisor next time, or perhaps consider a renounceable rights issue?

The ASX Bookbuild facility has been in place since October last year, but has had very few companies using it. It seems the investment banks & brokers fear the facility will erode their fees, and their ability to give their favoured clients preferential treatment.

Clearly, the ASX needs to take further steps to encourage companies to use ASX Bookbuild, and for all shareholders to be treated more fairly.

On the bright side, the self-managed super fund industry is rising in importance and holds around 16% (and growing) of Australia’s $1.5 trillion equities market.

Foolish takeaway

Companies that treat their shareholders unfairly earn them a black mark in mine and many other shareholders’ books. There are plenty of fish in the sea and only so many chances they will get from me.

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Motley Fool writer/analyst Mike King owns shares in Vocus, but is not sure for how much longer. You can follow Mike on Twitter @TMFKinga

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