Monday 2 March 2015

The perils of Private Placements

This blog has warned many times about the perils of Private Placements (PPs).

Rita Benoy Bushon, CEO of MSWG, wrote an excellent article about this matter in Focus Malaysia:

In short:
  • Why the need for PPs?
  • Why not consider a rights issue in which all parties can participate?
  • No transparency regarding the placees of PPs.
  • The discount widens if the share price rises (and the PP can be aborted if the share price decreases).
  • The urge for a limit on the size of a PP, say 10% of the shareholding through regulatory approval.

I like to add that minority shareholders in unlisted companies are often protected through the "right of first refusal", any new shares have to be offered first to the existing shareholders, who can take it up pro rata to their shareholding.

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