Raising share cap 'is unfair on investors'

A PLAN to raise the cap on how many shares small and mid-cap companies can issue each year has been criticised by wealth management companies, which say the move threatens investors' rights.

A PLAN to raise the cap on how many shares small and mid-cap companies can issue each year has been criticised by wealth management companies, which say the move threatens investors' rights.

In an attempt to help smaller listed companies access capital, the ASX last month released a proposal to raise the limit on how much capital companies worth less than $300 million can raise by issuing new shares.

Small and medium companies can today issue 15 per cent of their shares without investor approval.

Under the ASX proposal, companies would be able to raise an extra 10 per cent of their issued shares if shareholders had agreed in advance.

In a submission lodged this week, the Financial Services Council said the plan would lead to "inequitable outcomes through dilution" and it would damage the nation's hopes of becoming a financial services hub.

Raising the cap for mid-size companies would remove an important form of protection that ensured investors had a say in how their companies were run, it said. The lobby group, which represents wealth managers who invest $1.8 trillion in retirement savings, said the proposal should be set aside.

"We do not believe that removing shareholder protection should be outweighed by the desire for increased flexibility," the submission said.

"A race to bottom which erodes investor protections will not assist Australia in growing our reputation as a financial centre."

The ASX plan, which has attracted 150 submissions during consultation, remains divisive within the investment community. The Australian Shareholders Association has said the $300 million cap is too high and should be cut to $100 million to $200 million.

However, the Association of Mining and Exploration Companies says the proposal would give junior miners better access to equity capital. The ASX concedes the proposal may dilute shareholders' power but says its research has found shareholders in companies worth less than $300 million put a high priority on capital growth.