“The SC would like to confirm that it has conducted the raids."
PETALING JAYA: The Securities Commission (SC) says it conducted raids on premises of listed companies for suspected abuse of fundraising activities, confirming StarBiz’s article “SC raids premises of listed firms” published on March 14.
“The SC would like to confirm that it has conducted the raids. However, the SC is not able to provide further details as the investigations are ongoing,” it said via an email statement yesterday.
In the article, the capital market regulator had initiated investigations into several public-listed companies for alleged fraud, as well as potential false or misleading disclosure in their fundraising exercises.
It is learnt that the raids were conducted around the Tropicana area in Petaling Jaya.
Fundraising exercises such as private placements, employees share option schemes and rights issues are a norm for PLCs looking to secure funds for recapitalisation purposes.
However, capital raised from secondary issuance over the last few years has increased substantially but most of these companies have yet to see meaningful improved financial health, raising the question of how the funds were being utilised.
According to the SC, fresh capital raised from secondary issuance rose 76% year-on-year (y-o-y) to RM8bil in 2020 and another 78.8% y-o-y jump to RM14.3bil in 2021.
Subsequently, the figure grew to RM22.6bil in 2022 in terms of capital raised from secondary issuance albeit at a slower pace of 58%.
Generally, investors frown upon companies favouring private placement exercises mainly due to the dilution of the stakes of minority shareholders.
Also, there is a lack of clarity on the utilisation of the proceeds as these companies tend to say that the proceeds are meant for working capital purposes and do not reveal the identity of the placees.
Most of these companies adopt a similar pattern of fundraising exercises, consisting of a share placement, followed by a cash call and share issuance schemes to reward employees, especially the board of directors.
Their share prices tend to move higher soon after these fundraising exercises, regardless of whether there are any improvements in their financial performance.
Unfortunately, minority shareholders are at the mercy of the controlling shareholders when it comes to such fundraising exercises. How should the authorities step up their efforts to protect minority shareholders’ interests?
“I believe SC has already been enforcing stringent transparency requirements, including mandatory disclosure of financial statements, fundraising purposes, and the use of funds raised to ensure that investors have access to accurate information to make informed decisions,” a chief investment officer told StarBiz.
He added that the SC has also been implementing rigorous due diligence procedures for approving fundraising activities, including thorough scrutiny of PLCs’ financial health, management integrity, and business plans.
“Nevertheless, I believe a more regular reporting on fund utilisation and progress against stated objectives is required post fundraising activities, thereby ensuring timely utilisation of proceeds and do not apply to any undesired area, as opposed to what was planned during the activity.
“A regular update also forces companies to carry out the desired plan that was being disclosed to investors,” he said.
Meanwhile, Etiqa Insurance & Takaful chief strategy officer Chris Eng pointed out that the activity on Bursa Malaysia, in recent months, has shifted more towards mid-and small-cap companies even as the broader market has risen in anticipation of greater liquidity arising from the interest rate cuts of central banks around the world.
“This activity among the smaller caps has also attracted retail interest back somewhat into the market and therefore the activities of the regulator is timely to ensure proper market conduct amongst smaller listed companies.
“It serves as a reminder for the broader market that Malaysia is a well-regulated market,” he added.
As it is, a number of listed companies, especially the mid-to-small cap companies, had taken advantage of relaxed fund-raising rules during the Covid-19 crisis,
The rules permitted companies to sell up to 20% of their issued share capital via private placements until Dec 31, 2021, compared with 10% previously.
In addition, companies were allowed to issue up to 30% of their existing share capital in a share placement if the shareholders approved the exercise at an EGM.
During the period, there were more than 20 PLCs which had undertaken private placement exercises. Already, Bursa Malaysia is making efforts to enhance the transparency on fund-raising exercises involving new securities issuance.
The exchange issued a consultation paper late last year, seeking public feedback on the proposed amendments to the Main Market and ACE Market Listing Requirements.
Among the key proposed amendments include enhancing transparency on fund-raising exercises involving new issue of securities through enhanced disclosures in relation to placement exercises, status of utilisation of proceeds raised and past equity fund-raising exercises where the proceeds raised have yet to be fully utilised.
The regulator is also proposing to enhance the employee share scheme framework by subjecting a share grant scheme to the same restriction on the total number of shares issued under a share issuance scheme.
This includes enhancing transparency pertaining to the options or shares granted under an employee share scheme based on categories of participants.
