QUIET PENALTY

Curbing big discounts for specific investors

One-year silent period may be imposed on securities placed privately and sold at a discount of more than 10% of market price.

A one-year silent period is likely to be imposed on capital-raising securities placed privately and sold at a discount of more than 10% of the market price.

One-fourth of the silent period shares would be allowable for trade six months later if the Stock Exchange of Thailand agrees to the one-year lock-up period, an SET source said.

The lock-up requirement, if it comes into force, will not apply to creditors who agree to a debt-to-equity swap to ease the debt restructuring process or to institutional investors, the source said.

In the case of private funds subscribed to privately placed securities, the silent period would be used.

The silent period would not apply to leftover shares from a rights offering that are privately placed with specific investors at the same price as for existing shareholders.

The SET will hold a public hearing on the silent period today.

The opinions floated at the hearing will be evaluated before forwarding the regulation to the SET’s board of governors and later the Securities and Exchange Commission board for approval.

Any amendment will take a few months to come into force.

The lock-up idea comes after stock market regulators sought a method to tighten regulations concerning private placement in an effort to prevent listed companies from offering large amounts of capital-raising shares to specific investors at a big discount.

Small-cap companies are increasingly resorting to private placement offerings at discounted prices f or deep-pocketed investors.

Such share offerings typically trigger a buying spree by retail investors after the plan is announced, with private placement buyers reaping another windfall from the run-up in share price.

According to SET data, 35 listed companies last year sold capital-raising shares through private placement, with the combined amount representing 36% of total secondary offering value.

Of the 35, 23 sold private placement shares at a discount. Seven of those gave less than a 25% discount, seven gave 25-50%, two gave 51-75% and seven gave more than 75%.

In 2012, 25 companies issued private placement shares and their combined fund mobilisation constituted 20% of secondary offering value.

In 2013, 45 companies raised funds by issuing private placement shares, accounting for 19% of secondary offering value.

The SET source said the silent period would ensure that strategic partners who subscribed to private placement shares would hold the shares for a certain period.

Private placement “creates a dilution effect for existing shareholders and simultaneously affects market prices”, the source said.