The National Post is Canada’s second largest national paper.
TORONTO – A group of Canadian retail investors is outraged after they were shut out of a rights offering that is poised to crush the value of their investment.
Uranium miner Paladin Energy Ltd., which is based in Australia but also trades in Toronto, announced a A$144-million ($138-million) rights offering this week to bolster its balance sheet ahead of a US$300-million debt repayment due next year.
Under a rights offering, existing shareholders are given the opportunity to buy stock at a discounted price — 32% in this case — to maintain their overall stake in the company. But in the Paladin deal, the Canadian retail crowd is being deliberately excluded, meaning they can only watch as they get massively diluted.
“I think the whole principle here is outrageous,” John McNeil, the former chairman and chief executive of Sun Life Financial Inc., said in an interview. He owns Paladin shares, and like many other small investors, he is phoning the company to complain.
The central issue is inconsistencies between the Canadian and Australian regulatory regimes. Put simply, it is a lot easier and cheaper for Paladin to push this deal through in its home country than to offer it in Canada as well.
Australian rules allow Paladin to announce and complete the rights offering on an extremely tight timetable, which protects the company from market volatility and reduces risk. No prospectus is required, and the institutional sales are completed while the stock is halted, meaning the company does not have to battle the market to get the deal done. The whole transaction closes in a couple of weeks.
“The advantage to the issuer in being able to quickly complete an offering of this sort is significant,” Paladin spokesman Greg Taylor said in an emailed statement.
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