Vote not needed for four-fold dilution

Indian state-owned corporation NMDC recently lifted its stake in local mining hopeful Legacy Iron Ore to more than 90 per cent in a deal that minor shareholders say dramatically diluted their equity, with regulators powerless to take action.

The company announced a $11.7 million entitlement offer in December, at a price of 0.2 cents per share, to advance the Mt Celia gold project north of Kalgoorlie.

The company was valued at $2.9 million at the time the offer was released to the ASX.

The four-for-one rights issue was led by Ventnor Securities and closed in January, with about 4.8 billion shares purchased.

As a result, Legacy now has 17 times more shares on issue than miner Rio Tinto.

NMDC picked up 96.7 per cent of the new scrip, lifting its slice from 78.6 per cent of Legacy to 92.3 per cent.

The big raising was not approved by shareholders, nor was it covered under the approvals given to the company for equity raisings at the most recent AGM, but nonetheless was given the green light by the ASX.

That’s because under ASX listing rule seven, the dilution limit for capital raisings does not apply to entitlement offers.

The deal was also given approval by the Foreign Investment Review Board.

A spokesperson for the review board told Business News the decision and the reasoning behind it would not be released to the public.

NMDC last moved up the Legacy register in 2014, when the company secured 865 million shares for $12.1 million, also as part of an entitlement offer.

Legacy and NMDC share some key personnel.

Some of Legacy's directors could not partake in the raising. Table: Legacy's prospectus.

N Baijendra Kumar serves as non-executive chairman of Legacy and as both chairman and managing director of NMDC, while directors Amitava Mukherjee and Alok Kumar Mehta also hold executive roles at the Indian giant.

Company secretary Ben Donovan told Business News the deal was handled by chief executive Rakesh Gupta and director Devanathan Ramachandran, who he said were independent for the purposes of the raising.

Of the five directors only one, Mr Gupta, was eligible to participate in the raising because the other four did not hold shares in the company.

Only Mr Gupta and Mr Ramachandran receive remuneration for their roles on the board, however.

One big question will be if NMDC chooses to move to a compulsory acquisition.

Legacy’s prospectus documents say NMDC has confirmed it does not intend to proceed to compulsory acquisition, although it has a six-month time limit to get a takeover under way.

Mr Mukherjee is reported as saying, as recently as May 2019, that NMDC planned to take the remaining stake in Legacy and may delist it from the stock exchange.

Legacy’s third largest shareholder before the deal was the Pauley family, with a 0.5 per cent stake.

Ben Pauley told Business News many minor holders were angry and felt the board had not been acting in their interests.

Mr Pauley said he had opted not to participate in the entitlement.

“I don’t like the directors and I don’t like what they’re doing to the shareholders so I don’t want to support anything they’re doing,” he said.

“(People) expect directors are going to be working in their interest and not in the interest of the majority shareholder.”

Legacy’s Mr Donovan had a different view, however.

“The fairest way to have everyone included in the mix is to do a rights issue, so everyone participates on the same basis,” he said.

“If everyone contributed equally (NMDC) would stay where they are.

“If other shareholders don't contribute because they don't believe in the story or don't want to contribute funds, the natural process is (NMDC) or any shareholder that contributes, will increase their stake.”

Ventnor was expected to receive a $60,000 fee for advising on the offer.