(Updated)

SC warns of inadequate shareholder activism as issuance of new securities faces 'very low' dissent

SC warns of inadequate shareholder activism as issuance of new securities faces 'very low' dissent
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KUALA LUMPUR (March 28): The Securities Commission Malaysia (SC) said the level of shareholder dissent in 2020 was "very low" against the increase in the general mandate for the issue of new securities from 10% to not more than 20% of the total number of issued shares by public listed companies (PLCs) in Malaysia.

According to the SC's 2021 annual report which was published on Monday (March 28), while this could indicate overwhelming support for such corporate proposals, it could also imply low levels of investor activism among minority and institutional shareholders.

"Generally, the SC observed that the level of dissent was very low; the proportion of dissenting votes was only 0.4% on average and 17 out of 48 resolutions received no dissent at all.

"The shareholder bases of these PLCs were also relatively small, with only an average of 33 shareholders needed to pass the resolution," the SC said.

A further review of the implied low levels of investor activism among minority and institutional shareholders may be carried out to understand the underlying shareholder dynamics and heighten investor activism in corporate proposals by PLCs in Malaysia, according to the SC.

"In light of significant disruptions to the business environment due to the Covid-19 pandemic, the SC and Bursa Malaysia introduced various relief measures to assist PLCs in navigating through the pandemic. One of the relief measures allowed PLCs to increase the general mandate limit for a new issue of securities from the existing 10% to not more than 20% of the total number of issued shares, subject to certain conditions, initially for a period up to Dec 31, 2021.

"In December 2021, the deadline for the relief was extended to Dec 31, 2022 for PLCs that have yet to raise any funds using the 20% mandate in 2020 or 2021.

"In 2021, the SC conducted a policy evaluation of this fundraising relief by examining General Mandate Private Placements (GMPPs) announced in 2020 in line with the SC’s adoption of an evidence-based regulatory policy framework. Comprehensive data on the GMPPs announced in 2020 was collected and analysed, and the findings were used to provide a greater understanding of the GMPP market as well as to inform deliberations on similar policies," the SC said.

According to the SC, PLCs and investors have specific roles to collectively deliver robust protection for investors.

To promote market transparency, the industry and PLCs should take their cue from international best practices to provide adequate and meaningful GMPP disclosures to investors, and ensure proper utilisation of the proceeds raised, according to the SC.

"Investors should also exercise vigilance when reading the GMPP proposal documents and raise concerns, if any, during general meetings. PAs (principal advisers) advising on GMPPs and the intermediaries involved must put in place robust processes, controls and resources to ensure the highest quality of due diligence and compliance," the SC said.

The SC cited practices among listed companies in the UK where the pre-emption group, an industry body comprising listed companies, investors
and intermediaries, exists to promote best practices in the observation of investors’ pre-emption rights.

"In the UK, listed companies are also given the flexibility to raise funds up to 20% of their share capital on a temporary basis instead of the usual 5% for general corporate purposes, with an additional 5% for specified acquisitions or investments.

"The pre-emption group, an industry body comprising listed companies, investors and intermediaries which exists to promote best practices in the observation of investors’ pre-emption rights, recommends that listed companies intending to access this flexibility must fully explain the particular circumstances of the companies, including how the companies are supporting their stakeholders.

"Alongside the issuance information, these companies are also expected to disclose the shareholder consultations undertaken prior to the issuance and efforts made to respect pre-emptive rights," the SC said.

The SC said its 2021 policy evaluation also revealed that the Malaysian advisory market for GMPPs was concentrated among four PAs in 2020.

"These four PAs accounted for 71% of all GMPPs announced in 2020 and 52% (RM2.6 billion) of the total value announced," the SC said.

In 2020, 126 PLCs in Malaysia announced 133 GMPPs involving a new securities placement value of RM5 billion, according to the SC.

The SC, however, did not specify the names of the four PAs besides the 2021 GMPP-related figures in Malaysia.

Read more stories from the SC Annual Report 2021 here.

Chong Jin Hun