This article first appeared in The Edge Malaysia Weekly on October 24, 2022 - October 30, 2022

PERMODALAN Nasional Bhd (PNB), one of the country’s largest fund management companies, says it will continue to vote against any resolution pertaining to the allotment and issuance of new shares or other financial instruments by companies it has stakes in.

The fund says that in line with its sustainability framework to uphold transparency in voting, it strives to communicate to the public its voting decisions ahead of the respective investee companies’ general meetings. The intention is to allow its investee companies to do prior engagements with the fund on their plans when necessary.

“As per our published voting guidelines, we may vote against any resolution pertaining to the allotment and issuance of new shares or other financial instruments if the company is unable to provide sufficient disclosures on the manner of issuance and planned utilisation of the proceeds of the share issuance.

“[And/or if] the proposed issuance is potentially detrimental to the company and not in the best interest of shareholders,” the fund said when contacted by The Edge to comment on its plan to vote against Hong Leong Bank Bhd’s proposal to issue and allot shares under Sections 75 and 76 of Companies Act 2016 in the bank’s upcoming annual general meeting (AGM) on Oct 27.

The decision to vote against the proposal was published on PNB’s website. So far, the fund has voted against the same proposals by two of its investee companies, namely Asia File Corp Bhd and Bermaz Auto Bhd.

PNB, through Amanah Saham Nasional Bhd (ASNB), holds a 19.33% stake in Asia File, and 7.21% in Bermaz. Its parent, Yayasan Pelaburan Bumiputra (YPB), holds a 4.12% stake in Bermaz.

Asia File had its AGM on Sept 29, while Bermaz had its shareholders’ meeting on Oct 6. On both occasions, the proposal to renew the companies’ authority to issue new shares was passed by the shareholders, despite PNB voting against it.

PNB has also published that it intends to vote against IOI Corp Bhd’s proposal to allot and issue new shares at the latter’s upcoming AGM on Oct 31, citing that there is insufficient disclosure on the purpose and planned utilisation of proceeds from the proposed share issuance. PNB, through ASNB, holds 6.99% of IOI shares, while YPB holds a 0.61% stake.

Minority Shareholders Watch Group (MSWG) CEO Devanesan Evanson says PNB’s practice of disclosing how it intends to vote in advance of its investee companies’ general meetings is good for shareholder activism, calling on other major institutional investors to follow suit.

“That way, everyone will know the reason for the institutional shareholders’ voting stance. It will also give enough time for the public-listed companies to engage the institutional shareholder to clarify its position if it so wishes,” he tells The Edge.

“The advance voting stance will provide useful information for minority shareholders to make informed investment decisions,” he adds.

Last Friday, the MSWG published a newsletter on directors having the authority to allot new shares. The watch group said that the standard argument for the need to obtain prior shareholders’ approval to issue shares is that it would provide directors with the necessary flexibility to take swift action for corporate exercises, especially when market conditions are favourable.

“This would enable the company to speed up the process of issuing and allotting new shares (by way of private placement) without having to convene an extraordinary general meeting for shareholders’ approval.

“Besides, the board and management also argue that they could not expressly state the purpose and planned utilisation of the proceeds for the general mandate as they deem such information commercially sensitive.”

However, MSWG manager of corporate monitoring Lim Cian Yai says in the newsletter that shareholders’ interest is at stake when the board carries out multiple placements at their discretion in a carefree manner, which would significantly erode the long-term shareholders’ value.

“Dilution of ownership is a primary concern for shareholders when they grant the general mandate for new shares issuance if they do not participate or renounce their pre-emptive rights from taking part in the new issuance of shares.

“Often, minority shareholders grant these mandates without fully understanding the impact of their actions. As a result, the board and management are not pressured to make clear and transparent disclosure on how the share issuance proceeds would be utilised,” Lim adds.

MSWG also maintains that it would vote “against” the resolution on the general mandate if the company is “cash rich” and there are no plans or projects identified to utilise the cash accumulated.

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