Private Placement on Bursa: How Dilution Works

What is a private placement?

A private placement is a funding round in which securities are sold through a private offering, mostly to a small number of chosen investors, rather than through a public offering ^[3]. Those investors are typically institutions or other selected parties.

On Bursa, a listed company usually announces a “proposed private placement” before it happens, naming the maximum number of shares, the basis of pricing and the reason for raising money. One 2024 announcement filed with Bursa on behalf of an issuer proposed a placement of up to 10% of its issued shares to investors to be identified later ^[2]. The words “to be identified” matter: at announcement stage, existing holders usually do not know who the buyers will be.

Companies choose placements partly because of their faster execution ^[5]. That speed is the trade-off for existing holders, who are not offered the shares first.

How is it different from a rights issue?

In a placement the new shares go to selected investors, while a rights issue is offered to existing holders in proportion to what they own. Existing holders therefore have no automatic right to join a placement, and their stake shrinks if they do not buy elsewhere.

The contrast is worth spelling out. In a rights issue, a holder who takes up the full entitlement keeps the same ownership percentage. In a placement, only the chosen buyers gain a larger share of the enlarged company.

How do I measure dilution to EPS?

Measure it by recomputing the numbers on the enlarged share count. Stock dilution is the decrease in existing shareholders’ ownership percentage, and it can change earnings per share and the value of individual shares ^[4].

The method has three steps:

• Take the most recent reported profit attributable to shareholders and the number of shares before the placement.
• Add the maximum number of placement shares to get the enlarged share count.
• Divide the same profit by the new count, and compare it with the old earnings per share (EPS).

Hypothetical illustration for Company A, assuming profit stays unchanged and ignoring any return on the new money:

In this example the placement adds 10 million shares at an assumed RM0.90, raising RM9 million. EPS falls because profit is spread across more shares, and net assets per share dips because the shares were sold below the existing value per share. Had they been sold above it, net assets per share would have risen.

The result depends entirely on what the company earns from the new money. If the proceeds lift future profit by more than the dilution costs, per-share earnings can recover; if not, they stay lower. That is why the use of proceeds is the question to press.

Where are the placement price and use of proceeds disclosed?

They are disclosed in the proposal announcement and the circular filed on Bursa Malaysia, with later announcements when the price is fixed. A typical filing states how the issue price will be set. In the 2024 example, the placement shares could be priced at a discount of not more than 10% to the 5-day volume-weighted average market price before the price-fixing date, under the paragraph of the Listing Requirements cited there ^[2].

The rule behind that number sits in Chapter 6 of the Main Market Listing Requirements, in the text as at 2 January 2025 ^[1]. A listed issuer must not issue shares or convertible securities that, together with those issued in the preceding 12 months, exceed 10% of its issued shares (excluding treasury shares), unless shareholders approve the precise terms at a general meeting ^[1]. Shares issued under that general mandate must not be priced at more than a 10% discount to the weighted average market price for the 5 market days before the price-fixing date ^[1]. Placees must pay within 5 market days of the price-fixing date, and a Recognised Principal Adviser must act as placement agent ^[1].

Be careful with the cap. A 2020 report in The Edge Malaysia noted that Bursa had raised the placement mandate from 10% to 20% as an interim measure running until December 2021 ^[5]. Limits can change, so read the limit in the filing you are reviewing and check the Listing Requirements in force instead of relying on a remembered figure.

Filings also show a pro forma table of net assets per share and gearing before and after the exercise ^[2]. Use it to check your own recalculation.

What should a use-of-proceeds table answer?

A good table answers four questions: what the money will be spent on, how much goes to each item, how soon, and what happens if less money is raised than the maximum. The 2024 filing shows the pattern, with a table giving each purpose, a utilisation timeframe, and minimum and maximum amounts ^[2].

Read it with these points in mind:

• Is the purpose specific, such as repaying a named borrowing, or vague, such as general working capital?
• Does the timeframe match the pace of the business?
• If the minimum scenario is much smaller than the maximum, which items would be dropped?
• Does the stated purpose fit what the balance sheet and recent results show?

Afterwards, follow the money. The next quarterly reports should show whether borrowings fell or capacity grew as promised.

How should I compare the price with book value?

Compare the placement price with net assets per share and with recent trading levels. A placement priced below net assets per share transfers some value away from existing holders, as the example above shows. The price-to-book ratio puts the same idea in a single number.

This article does not judge any specific placement. Its aim is to make the arithmetic and the disclosure checklist routine, so that any announcement can be tested in minutes.

Frequently asked questions

Sources

1. Bursa Malaysia — Main Market Listing Requirements Chapter 6 New Issues of Securities, as at 2 January 2025: general mandate limit, pricing discount, payment period, placement agent
2. Bursa Malaysia announcement filed via UOB Kay Hian for an issuer, 29 October 2024 — proposed placement of up to 10%, 10% price discount basis, 10% general mandate limit, use of proceeds and pro forma net assets tables
3. Wikipedia — definition of a private placement as a private offering to a small number of chosen investors
4. Wikipedia — stock dilution and its effect on ownership, earnings per share and share value
5. The Edge Malaysia — 2020 report on the faster execution of placements and the interim increase of the placement mandate to 20% until December 2021

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