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Otago Daily Times, Issue 12100, 20 July 1901, Page 6

There is a matter in connection with llllllillg companies that has not yet had public attention drawn to it, but which is of grave importance to shareholders and to the investing public generally. We refer to the practice that has been

adopted by the directors of more than one of our mining companies of placing sill loplitiously 111 the market n new issue of shares or a portion of the share capital that has boon previously unissued. In very many eases companies havo had to increase their capital and meetings of shareholders have 'been called to give the necessary authority to the directors. In most eases the shareholders at such meetings have also decided as to the nature of sncli increase, its amount, and the manner in which the increase is to be effected— whether by the issue of ordinary shares or of preference shares, and, in case of preference shares, whether the preference given is permanent or only till a certain amount in dividends is paid to the holders of these shares. In other ca>es of financial difficulty debenture whelms of various kinds have been adopted. At some of these meetings, it will have been noticed that shareholders have given the directors authority to issue such shares at such times and in such manner as may seem lit to the directors. .Similarly in eases where there is a portion of the share capital unissued, it has been left to the directors to issue this at such times and in such ilianner as they should tleoill best-. At first sight this seems reasonable, but expel ience has shown that there are certain dangers attendant on this method of dealing with new issues and with previously unissued capital. The method adopted by the directors of one or two companies lately has been lo place the new issue shares, or portions of these, in the bands of some one or two brokers to he unloaded 011 the Exchange. The result has been that in some at least of these cases the market has been seriously affected. As those shares keep coming on, the market becomes depressed without any apparent reason, and people begin to wonder what is wrong. Then, when u considerable number of shares have been unloaded, the secret leaks out, and down prices go still further, as people are afraid to buy when they know that -100 or 500 more shaves may be put on the market- at any moment. The argument urged on behalf of this mode of procedure is that* it is all done in the interests of shareholders—that it is the directors' duty to get as high a price as possible for these "hares in order that the company may benefit financially, and that it is only by keeping everything as secret as possible that the shaves call be put oft' in this way and a high price obtained for them. 011 t-he other side, there is 11. great deal to be said. In the first place, it cannot he to the benefit, of the company that its shares should have great fluctuations in price at short intervals without any apparent reason, for public confidence in it is thereby shaken, and the company .suffers in reputation and consequently suffers financially as well, since it is evident that it cannot be to the advantage of any company to he held in low estimation by Ihe investing anil speculating public. 111 the second place, individual shareholders are made to suffer, as their stock is depreciated, and if necessity should compel any of them to part with some of their holding (and wc need hardly say that this contingency has happened very frequently of late) they have to sell out at a much lower price than would have been the case under normal condition--. On the other hand, if investors, thinking the time is ripe to put money into a company, and, after making due imjuiry as to its finances and prospects, buy shares at a time just previous lo this secret issue, tbev find that- though they hud made as tliey thought careful investigation into the company's affairs, the price of the shares unaccountably begins to full, and when it is too late they find that a, new issue lias been surreptitiously placed on the market—tlmt, in short, the stock has been "watered." Is it to be. wondered at that after a few experiences like, this investors should decide to leave dredging shares to tho mining speculator pure and simple? The dredging industry is one that from its nature is largely speculative, hut those who put their money into it should not lie subjected to the? results of such methods as those here referred 10. Secrecy, both as to returns and also as to other information regarding dredges and their working, is too prominent a feature in connection with some of the companies. It seems to he overlooked that the interests of shareholders are. 1101 best served by keeping all kinds of information back until a few "in the know" have had a chance to take advantage of (he information that really belongs to the whole body of shareholders. There is yet another danger to which this method of dealing with new issues is peculiarly exposed. If a broker has an order lo sell 5(10 shares at a limit of .'los at a lime when the market price is, say, ;).js, the actual time and price being left to his discretion, what is to prevent him selling out largely oil behalf of his own clients, and then, when he has sold a few hundred shares, coming 011 with the company's shares and si ill further depressing the market, finally buying back at a still lower price the shares he originally sold. In other words, a few are enabled lo make a profit out of information that the directors have in trust for the honefit of their shareholders. We understand it is the practice in other centres —Melbourne, for example—to call for lenders for such shaves, and in such a. case the new issue is quietly absorbed without any derangement of the market, any variation in price being merely the fall proportionate to the increase of capital, and not always even that. So far as can he judged, I lie interest s of companies, of the indivnlnal .shareholders, and of the investing public generally, would be better conserved by giving full publicity regarding such i«ues, and by adopting some course similar (0 that referred to above than by the plan that has been adopted by several companies of late to improve their finances.