What hat do listed companies put on shareholders by increasing their capital?

According to Tejarat News, Vahid Roshanghalb, the head of the primary market supervision department of the Stock Exchange and Securities Organization, has announced that due to the obsolete laws related to the process of increasing companies’ capital in the commercial law, as well as the failure of some companies to perform their duties in a timely manner. Capital is, in some cases, a time-consuming process of raising capital, and this sometimes leads to dissatisfaction among the shareholders of companies registered with the Exchange and Securities Organization.

He added: “Currently, measures are being taken to improve the above procedures.” These include negotiations to amend the old rules, as well as designing a mechanism to raise capital from receivables and bring in cash electronically to eliminate time-consuming and costly activities. What effect can this news have on the performance of listed companies and what is the effect on the stock market?

Alireza Tajubar, a capital market expert, believes that the micro-shareholder benefits the most. Most capital market participants who have a long history of buying and selling stocks avoid buying stocks that are in the process of raising capital.

The reason for this is the locking of a part of the shareholder’s capital in that share, and also the issuer can prolong the process of raising the capital and the people’s money will be locked in the share for a longer period of time.

In another part of the conversation, Tajubar pointed out that the current capital increase laws are based on the commercial law, which was written about 90 years ago and currently cannot meet the needs of shareholders and companies.

The market expert also pointed to two problems that increase the capital of companies in the market and said: The first problem that companies create for the shareholder after the capital increase is the sale of unused pre-emptive rights. Because companies do not deposit the shareholder’s money after selling these pre-emptive rights, this leads to a decrease in shareholder confidence.

He added: “Also, the next problem of increasing the capital is the right of priority that has been sold to the shareholder.” It takes a long time for these pre-emptive rights to be converted into shares, and in practice the undecided shareholder capital is in the hands of the issuer.

If this law is implemented, it will be entirely in the interest of the micro-shareholder. Because in both types of pre-emptive rights are used, the rights of the micro-shareholder are violated, and as a result, both a share in the sales queue is locked and trust in the capital market is low.

In a market whose motto is based on liquidity and transparency, the increase in long-term capital calls into question this motto.