I can see why people say short selling and depressing company share prices before a capital raising hurts the business. Yes, the dilution is bigger if the company has to raise capital at lower prices than if the short sellers weren't around. I recall reading an article where some junior mining companies were complaining that hedge funds were shorting their stock when they were in dire need of funding, making it even more difficult for them to raise cash.
I myself, I'm not too sure. You can avoid the damage caused by dilution as an investor if you participate in the share issue on the same terms as everyone else. That way you still end up with the same % stake in the company as before. Only shareholders who don't participate in the capital raising face any dilution of their stake. I think it's fairly easy to tell when a company will still more capital to continue operating, (e.g. CDU is one) so if you do your due diligence you should know you need to set aside some money to participate in future capital raisings to avoid dilution. That way you protect yourself against the risk that your company needs to raise a lot of money at severely depressed share prices.
So, my view is, yes hedge funds can cause loss, if you're unprepared for a capital raising as an investor. That goes back to my idea that people should be aware of risks and do their due diligence before participating in the stock market.
CDU Price at posting:
$1.98 Sentiment: None Disclosure: Not Held
