Wealth managers warn of erosion in investor rights

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

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

The ASX is proposing to lift the limit on how much companies worth less than $300 million can raise by issuing new shares.

Small and medium companies can issue 15 per cent of their shares without investor approval but, under the ASX proposal, they will be allowed to raise an extra 10 per cent of their issued shares if shareholders agree in advance.

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

Raising the cap would remove an important form of protection that ensured investors had a say in how their companies were run, it said.

The lobby group, representing managers that 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 proposal, which has attracted 150 submissions during recent weeks of 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 say the proposal will give junior miners better access to equity capital needed for growth opportunities.

The ASX concedes the proposal may dilute shareholdings, but its internal research has found shareholders in companies worth less than $300 million put an especially high priority on capital growth.

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