Canadian investors outraged after being shut out of Paladin Energy’s $138-million rights offering
Republish Reprint Peter Koven | November 25, 2014 6:54 PM ET More from Peter Koven | @peterkoven
Handout/Paladin EnergyAustralian 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.
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.
If Paladin also launched the offering in Canada, it would need to prepare a prospectus, get it cleared by regulators and then go through a 21-day offering process. The company said it would be a minimum of five weeks before it got the money.
Canadian securities rules allow institutional investors in this country to take part in the offshore Paladin offering. That option is not available to retail investors.
Mr. McNeil, who is retired and lives in Toronto, is furious at the company for structuring its deal like this.
“The issue of screwing their Canadian shareholders is just unconscionable,” he said. “Are they working for all of their shareholders or some of them?”
He blames the Paladin management team for this situation, saying they “know nothing about finance” and should not have these balance sheet problems in the first place. But he also blames the regulatory regime in Canada.
He said that if Australian regulators approve the offering, Canadian regulators should accept it and allow all investors to take part in the deal. He also thinks the Toronto Stock Exchange should threaten Paladin with de-listing if it does not make the offering available to all shareholders.
The Ontario Securities Commission said in an emailed statement that it allows expedited rights offerings that follow foreign market rules (such as Australia’s) when there are “minimal” shareholders in Canada. But it appears that Paladin does not qualify and did not request relief.
“We continue to work with other [Canadian Securities Administrators] members to see if our rights offering regime can be streamlined to improve its efficiency and effectiveness for reporting issuers,” the OSC said. “This work is well underway.”
Dundee Capital Markets analyst David Talbot calculated that total dilution from the rights offering could be more than 70%.
“There is a trade-off here — Paladin is fixing its balance sheet concerns at the cost of dilution, which in turn is killing some of the leverage this stock was expected to have,” he said in a note.
This controversy could come up again in the future, as more than 30 Australian companies list their shares on the TSX.
PDN Price at posting:
38.5¢ Sentiment: Buy Disclosure: Held
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