This article first appeared in The Edge Malaysia Weekly on October 2, 2023 - October 8, 2023

Ho Hup Construction Co Bhd intends to undertake a private placement exercise involving one-tenth of its share base, at a 10% discount to raise RM12.4 million, most of which will be used to pay its subcontractors.

In a filing with Bursa Malaysia last Monday (Sept 25), the construction outfit said the private placement exercise would entail the issuance of up to 49.49 million shares — 10% of its share base of 494.86 million shares — to yet-to-be-identified independent investors at an issue price to be fixed later.

Noteworthy is that Ho Hup had indicated an issue price of 25.05 sen per share, which is 10% lower than its five-day volume-weighted average market price up to and including Sept 22 of 27.83 sen.

Although Ho Hup highlighted that it had not undertaken any fundraising exercises in the past 12 months, some shareholders feel that the placement should include a one-year moratorium on selling the shares to prevent a sale and quick profit for the independent investors at the expense of minority shareholders, who will see their shareholding diluted as a result of the private placement.

Generally, funding activities or corporate exercises featuring market price discounts without a condition attached could potentially disadvantage and unfairly impact the minorities, such as diluting their shareholding.

Ho Hup may have complied with the listing requirements of Bursa Malaysia Securities Bhd, but the question remains — should the regulator explore measures to prevent certain parties from exploiting such gaps in the system?

To be fair, Ho Hup’s subcontractors deserve fair compensation too, but offering shares at a market discount raises concerns among minority shareholders.

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