I do not hold WCT and I feel that I should write this article for the masses and minority shareholders. I took notice of a good construction company where it changed hands and seriously I thought it has moved to a more dangerous hand but one who probably can move the group further if the controlling shareholder does the RIGHT thing.

This new announcement, is all about the controlling shareholder does the WRONG thing. He does not care less about the smaller shareholders - EPF, PNB etc. included. WCT just yesterday announced that it is going to do a 10% fund raising through private placement. That itself smells rotten intentions.

Why?

First of all, the new shareholder (Tan Sri Desmond) bought the controlling share from the original founders at RM2.50. That is fine as although I do not really think that WCT is worth that much, to get control, you must pay premium. I also take note of the shareholder's need to improve its balance sheet. Hence, it has several options - rights, private placements, sale of assets as the most probably ones. It choses private placements and this is the worst one probably.

This is an option which may provide value to controlling shareholder but would be bad for smaller shareholders. It feels that the controlling shareholder is trying to get his portion (through proxies) at a cheap. This is because for private placements, it can issue its shares at 10% discount from market price (5 days average).

Now, the question is very clear. If Tan Sri Desmond bought his shares at RM2.50, would he allow additional shares to be issued at say RM1.60 (10% discount from RM1.77 current price at this point of writing)? And this is to external parties. If he is not protecting himself, he is not so clever isn't he? This means he is diluting his own purchase value.

I do not think he is that stupid to do this. And from the look of the market reaction, they probably know what he can do. Proxies! (I say can because I definitely do not know this is what he does, hence the name proxies)

This is the reason why private placement is WRONG. First of all, it should not be at up to 10% discount from market price. Second of all, it should have the first option to all current shareholders. Not new shareholders.

Private placement has been around as long as I followed the Bursa market since 1990s and this is seldom done in a good way to protect shareholders. Not always bad, but seldom is good.

It is quite archaic in terms of structure.