Friday, November 1, 2013

Paladin shareholders told to reject $88m placement

Paladin Energy shareholders have been urged to reject a controversial share placement that has drastically diluted the value of shares in the uranium miner over the past 11 weeks.

Despite the $88 million placement taking place in early August, shareholders will be asked to approve it retrospectively at Paladin's annual meeting of shareholders on November 21.

Shareholder approval would allow Paladin to make further share placements later this year, but rejection would prohibit any more raisings, and duly close-off one of the company's swiftest methods of raising cash.

Proxy advisor ISS has recommended that shareholders vote against the placement on the grounds that most of them were denied the opportunity to participate, with the placement sold mostly to large institutions.

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Paladin shares were fetching $1 prior to the placement being announced in early August, and the stock immediately slipped to 72 cents upon it being publicised.

The stock has since slipped further, and is trading at 41 cents this morning.

ISS head of research Dr Ulysses Chioatto said shareholders should not ratify the controversial placement.

''The placement was very dilutive to existing shareholders, and more importantly they never got a chance to participate, so that was quite discriminatory and definitely not good governance practice,'' he said.

''It's really holding the current shareholders with some significant disdain by not allowing them to be involved.''

While a negative vote will not overturn the share placement, Mr Chioatto said it could still prove uncomfortable for Paladin executives.

''This is going to be quite problematic if Paladin does not receive shareholder approval for that share issuance,'' he said.

''There is a range of different actions that are open to shareholders if they don't approve this placement retrospectively, so there is no clear answer as to what could be done next.''

Several Paladin executives are already under pressure, with an Asian hedge fund understood to be leading a broader shareholder push to oust managing director John Borshoff, who has held the role for 20 years.

The same group is also eyeing chairman Rick Crabb, who has been involved with Paladin almost as long as Mr Borshoff.

Despite that pressure, ISS encouraged shareholders to re-elect Mr Crabb at the AGM, saying he was sufficiently independent to continue in the role.

Mr Borshoff could not be reached on Thursday.

Paladin chairman Rick Crabb said he was ''surprised'' by the recommendation, adding ISS had failed to appreciate the difficult context in which the share placement was made.

Paladin is listed in both Australia and Toronto, and Mr Crabb said a broader rights issue in a time of falling uranium prices would have been lengthy, complicated process that may have created uncertainty about the company's ability to raise money. 

''We could have had a downward spiral in price, so it was a properly considered risk management strategy we followed,'' he said.

''It was a risk management strategy bearing in mind the weakness in the uranium price.''

Other proxy advisors like CGI Glass Lewis and Ownership Matters are expected to publish their reports on Paladin next week.


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