The good form of dilution
The notion of “dilution” needs proper understanding. Does it mean additional shares issued, or lower share prices, or both? In the way the term was used in the article “Test Case for JSE” ( FM Fox November 30-December 5), with views attributed to Hyprop management, it appears to mean both. That is, more shares were issued to the disadvantage of shareholders.
This in fact was not the case. More shares were issued by Sycom to raise funds that were invested in assets that added value to the company and its shareholders. The share price has appreciated since the issue, as management would have hoped it would to reflect their good judgment and actions.
Thus the capital raising was to the advantage of all shareholders — those subscribing to additional funds and those not called upon to do so.
Such capital-raising exercises by the listed property sector on the JSE have been commonplace — and mostly highly successful in the sense that the capital employed has generally been well targeted and added value for shareholders as all the shares in issue have gone up in market price.
Typically such capital-raising issues were not in the form of formal rights issues. It should be recognised that property loan stocks and property unit trusts do not build reserves out of retained cash or earnings, as do most listed companies. They pay out all cash realised after interest and therefore rely to a large degree on raising additional capital through additional shares issued to fund investment activity.
Judged by the performance of the sector over time and also of Sycom, its shareholders have greatly benefited from this process — more shares issued, accompanied by much higher share prices. If this is “dilution”, then it is dilution to be greatly appreciated. from retirement and utilising their experience in projects and in training younger practitioners. What happened?
It is clear that, while our government busies itself with party power struggles and social engineering programmes, the world’s finest construction industry and the world’s finest engineering professionals are languishing in neglect.
Dare we hope that this time something will happen?