COMPANIES PLACING* SHARES ON THE MARKET.

Otago Witness, Issue 2471, 24 July 1901, Page 20

COMPANIES PLACING* SHARES ON THE MARKET.

[ There" is a matter in coijnection with joining companies that has not yet had , " public attention drawn to it, but which is of grave importance to shareholders *a»d 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 surreptitiously in the market a new issue of shares or a portion of the share capital that has been previcrasly unissued. In very many cases companies have had to increase their capital, and meetings of shareholders have been called to give the necessary authority to the- directors. In most cases the shareholders at such meetings have also decided as to the nature of &uch 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 cases of financial difficulty debenture schemes of various kinds haye ■, 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 sneb. manner as may seem fit to the directors. Similarly in cases where there is a portiou of the share capital un- , issued, it has been left to the -directors to is»tie this at such times and in such manner as they should deem best. At first sight this seems reasonable, but experience has showit 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 to place the new issue shares, or portions of these, ' in the hands, of some one or two brokers to be unloaded on the Exchange. The result has been that in some at lea-st of these cases the market has been seriously affected. As these shares keep coming on. the market becomes de-* pressed without any apparent reason, • and people begin to wonder what is wrong. Then,, when a considerable number of shares have been unloaded, tiie secret leaks out, and down prices go still further, as people are afraid to buy when they know that 400 or 500 more shares may be put on the market at any moment. The argument urged on 1 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 shares in order that the company may ; benefit financially, and that it is only by keeping everything as secret as pos- ■ sible that the shares can be put off in this way and a high price obtained for them. On the other sitle, there is a great deal to be said. In the first place, it cannot be to the benefit of the company that its shares should have great fluctuation^ in price at short intervals without any apparent reason, for public confidence in it is thereby shaken, and the company sufters in reputation and consequently suffers financially as well, since it is evident that it eaJiuot be to

the advantage of any company to be held in low estimation by the investing and speculating public. In 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 we 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 conditions. On the other hand, if investors, thinking the time is ripe to put money into a company, and, after making due inquiry as to its finances and prospects, buy shares at a time just previous to this secret issue, they find that though they had made as they thought careful investigation into the company's affairs, the price of the shares unaccountably begins to fall, and when it is too late they find that a Hew issue has been surreptitiously placed on the market — that, 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 the mining speculator pure and simple? The dredging industry -is one that from its nature is largely speculative, but those who put their money into it should not be subjected to the results of such methods as those here referred to. 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 be overlooked that the interests of shareholders are not best served by keeping all kinds of information back until a few "in the know" have had a chance to take advantage of the 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 to sell 500 shares at a limit of 30s at a time when the market price is, say, 355, the actual time and price being left to his discretion, what is to prevent him selling out largely on behalf of his own clients, and then, when he has sold a few hundred shares, coming on with the company's shares and still further depressing the market, finally buying back at a still lower price the shares he originally sold. In other words, a few are enabled to make a profit out of information that the directors have in trust for the benefit of their shareholders. We understand it is the practice in other centres — Melbourne, for example — to call for tenders for such shares, 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 be judged, the interests of companies, of the individual shareholders, and of the investing public generally, would be better conserved by giving full publicity regarding such issues, and by adopting some course similar to that referred to above than by the plan that has been adopted by several companies of late to improve their finances.