This article first appeared in The Edge Malaysia Weekly on November 11, 2024 - November 17, 2024

Last week, Datasonic Group Bhd (KL:DSONIC) proposed a bonus issue of 1.548 billion warrants on the basis of one free warrant for every two existing shares held. It also proposed the allocation of options to directors under its employee share option scheme (ESOS) established in 2021.

In a filing to Bursa Malaysia, the e-government service provider said the ESOS is to recognise the contribution of eligible directors and employees of the Datasonic group and extends to the non-executive directors for the opportunity to participate in the company’s equity as an incentive for their continuous efforts and contributions to its development and growth.

As such, in recognition of their services and contributions, the board proposed allocating ESOS options to its executive deputy chairman and CEO Datuk Abu Hanifah Noordin, independent non-executive director Tunku Datuk Nooruddin Tunku Shahabuddin and executive director Erna Ismail.

It is worth noting that Nooruddin was appointed in August and Erna in early October, less than three months ago. Erna is also a member of the ESOS committee. This begs the question of whether it is too soon to grant ESOS allocations to the duo.

Furthermore, the proposed bonus issue of warrants is equivalent to a “delayed cash call”, rather than a reward to shareholders. One may argue that the free warrants would enable shareholders to buy Datasonic shares at a lower price, when the stock price reaches a higher level in the future. Still, shareholders need to fork out money to exercise their warrants, otherwise they will suffer from a shareholding dilution.

Furthermore, this will also open the door to substantial shareholders and parties acting in concert to gain control of the company.

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