Last month, NWD did a surprise HK$1.23bn placing of new shares under the general mandate, and since then, $2.04bn has been wiped off the market value. We urge you to vote against the new issue mandate which does not comply with the Vampire recommendations and would allow HLD to do another dilutive placing.

New World Dev EGM voting advice
21 November 2003

Company: New World Development Company Limited Limited (NWD)
Stock code: 0017
Meeting type: Extraordinary
Date of meeting: 2-Dec-03
Time of meeting: 16:00
Advice date:  21-Nov-03
CCASS voting cut-off 28-Nov-03 VOTE NOW
Notice of Meeting: Click here
Voting method: Webb-site.com will require a poll, all proxies will be counted
How to vote: See our voting guide

Note to journalists:
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Item Description Vote
1 Increase the authorised share capital to HK$3,300m FOR
2 Mandate the directors to repurchase shares FOR
3 Mandate the directors to issue additional shares AGAINST
4 Mandate the directors to issue repurchased shares AGAINST

Reasons AGAINST

Items 3 and 4

On 29-Oct-03, NWD announced a placing of new shares representing 10.1% of the existing issued shares at a 7.4% discount to the then market price of $5.40 per share, raising about $1.23bn. The shares closed yesterday at $4.575, down 15.3% since the placing, wiping HK$2.04bn off the market value of the company. By comparison, In the same period, the Hang Seng Index (from which NWD was ejected on 9-Jun-03) has fallen only 2.4% from 12,130.51 to 11,845.41.

If your company offers new shares to other investors at a discount, but not to you, then your company is transferring value from you to the new investors. Their gain is your loss. That's why we believe an issue for cash should be done by rights issue, failing which it should be limited to 5% of existing issued shares and a maximum discount of 5%.

Webb-site.com urges all investors to vote against the general issue mandate for all listed companies, for the reasons explained in Project Vampire, unless they comply with the recommendations set out in that article. The non-pre-emptive issue mandate allows management to choose the shareowners by allotment of shares. This corrupts the governance mechanism. Shareowners should choose management, not the other way around. If a company wishes to raise cash by issuing shares, then it should do so by rights issue, and give you the opportunity to maintain your percentage ownership stake in the company.

This year so far, a majority of independent investors in 10 Hang Seng Index companies: Cathay Pacific, Cheung Kong Infrastructure, China Unicom, CITIC Pacific, Legend, MTRC, PCCW, Shanghai Industrial, Swire Pacific and Television Broadcasts have all voted against the issue mandate. In July, another index member, Johnson Electric, became the first member to modify their mandate to partially comply with the Project Vampire recommendations by cutting the size of the mandate to 5% of existing issued shares. HSBC, as a UK company, also complies.

Their fellow index members (or in NWD's case, former index member) would do well to take note of this. After all, we don't mandate boards to buy back shares from chosen shareholders at a premium to market price, so why should they be allowed to issue shares to chosen shareholders at a discount?

© Webb-site.com, 2003


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