Let small players join in

Several ASX-listed companies have garnered cash to support themselves through the coronavirus pandemic via capital raisings, a process that shores up balance sheets but also offers existing shareholders an opportunity to increase their holdings at a discounted rate.

So should you participate in a capital raising? While most sharemarket observers saw capital raisings as a necessary move in an economic crisis, there have been calls to ensure smaller investors do not find their positions diluted. Dilution occurs when you own, say, 100 out of 1000 shares (10%) issuedbyCompanyA–andthenCompanyAdecides to do a capital raising by issuing a further 100 shares to a fund manager. You would now hold 100 out of 1100 shares (9.09%), meaning you’ll get a proportionately smaller slice of profits.

“It is a form of corporate financial ethics,” says Mike Robey, a director at the Australian Shareholders’ Association (ASA). “The three major things companies should do is be fair to