THE DISTILLERY: Capital clash

Retail shareholders can't dominate the discussion about placement limits for smaller companies. However, the ASX's proposal to loosen them up is too broadly targeted. This argument has been slowly breaking out between columnists over the last few days and in this morning's edition of The Distillery, The Australian Financial Review's Chanticleer columnist Tony Boyd and Fairfax's Insider columnist Ian McIlwraith take up arms. Meanwhile, The Australian's John Durie gives a considered summation of the hot-button issue this week, the Reserve Bank's culpability in the slow economy, while another commentator says Telstra could benefit if Canberra fiddles with superannuation earnings.

But first, The Australian Financial Review's Chanticleer columnist Tony Boyd claims the objections to ASX's proposal to increase the levels that smaller companies can raise capital without shareholder approval are skewed towards retail investors. They're not the only investors in the market.

"Elmer Funke Kupper's latest effort to ensure the Australian Securities Exchange can maintain its competitive position while making it easier for mid- and small-cap companies to raise capital is a welcome move and not a wholesale attack on shareholder rights. The proposal involves lifting the placement cap for companies with a market capitalisation of less than $300 million from 15 per cent to 25 per cent in one year. It includes the important proviso that the higher cap be approved ahead of time by shareholders at a general meeting. As with every reform proposal there are pros and cons. But the reaction in some quarters has been ballistic. The critics see it as an ideal tool for boards to entrench their positions and look after their mates at investment banks and funds management companies.”

Fairfax's Insider columnist Ian McIlwraith isn't so convinced about the ‘money for mates' theory, but he does argue that the proposal is poorly targeted for its stated aims.

"The companies that most need this form of capital raising ability – and the ones with shareholders least likely to complain about having their investments diluted – are exploration and life sciences groups. Face it, these are companies that want to have a product they can sell, but are throwing huge amounts of investor capital at proving their ideas by discovering a mine, a well, a drug or some other form of commercial device. They are really speculative investments where investors only buy shares, or should only buy shares, in the hope of backing a winner in the future. There is no dividend income that would have to be shared among the newbie shareholders.”

The Australian's John Durie says that the criticism landing at the feet of the Reserve Bank is unfair because monetary policy is a rather rudimentary instrument to influence the economy.

"Some argue the RBA has held back to keep some ammunition in case Europe collapsed, as is still possible at any time. Ironically, many argue that the massive refinancing undertaken by the European Central Bank was designed as a holding pattern to settle markets pending direct government action. Some suggest that's what the RBA should be doing. There's still a lack of leadership and dysfunctional government at both state and federal levels, and there is not much RBA governor Glenn Stevens can do about that.”

Indeed, a version of this debate broke out yesterday in the pages of Business Spectator between editor-in-chief Alan Kohler and columnist Christopher Joye.

And fourthly, The Sydney Morning Herald's Elizabeth Knight says if the government's obvious interest in mining superannuation for revenue extends to the earnings that the accounts produce – not the tax at which contributions are made – then high yielding, fully franked dividend stocks could become very attractive.

"Whether inside or outside the umbrella of super, listed shares that provide fully franked earnings have the potential to be far more attractive. This is because those investments that do not deliver tax-free income in super funds, such as bank interest, would benefit from the franking credits on shares by offsetting more of the higher tax rate. This could push up the prices of high-yielding, fully franked shares. The downside to investing on yield, which is a function of dividend over share price, is that the share price could be low because of the high risk associated with future earnings. Among the high-yielding stocks are some of the riskier players such as Myer, David Jones, Pacific Brands, Specialty Fashion Group and Tabcorp. But there is also a group of stocks with less volatile earnings that sits among the high yielders. The top 30 with fully franked dividends include Telstra and the big four banks.”

It's interesting to note that Telstra shares finished yesterday's session at their highest point in 30 months. In other company news, The Age's Eric Johnston says close watchers of Macquarie should brace themselves for the silver donut's lowest profit since 2005. The Age's Malcolm Maiden argues that the Leveson inquiry into News Corp seems to be producing more problems for British Prime Minister David Cameron than News tycoon Rupert Murdoch.

The Australian Financial Review's Matthew Stevens says the Atlas Iron-QR National feasibility study into a new Pilbara rail line for smaller producers is a sign of growing confidence in our smaller players in the west, but also a vindication for critics of the legal battle for third-party rail access. The Australian's Bryan Frith cleverly points out that Wah Nam International's efforts to mop up the rest of Brockman Resources may be hampered by this news, because Brockman stands to benefit.

In economics, The Age's Peter Martin reports that a private sector analysis of the budget estimates Treasurer Wayne Swan will be $8 billion short of a budget surplus in 2012-13 unless he cuts really hard. The Australian's economics correspondent Adam Creighton takes a critical look at the eligibility for the aged pension and concludes its simply too loose for a welfare policy that costs so much. Creighton's colleague Glenda Korporaal says Financial Services Minister Bill Shorten is to be applauded for putting the Health Services Union into administration, but adds the controversy raises broader questions about the union movement itself.

And Giles Parkinson deploys a cracker of a word – vertiginous – in his piece in The Australian, arguing that only the best clean energy companies will survive.