The AFR produced an interesting James Dunn cover story in its personal finance section today dedicated to the question of fairness for retail shareholders when ASX-listed companies raise capital. It is a rarely discussed issue in the media, even though retail shareholders have been diluted out of more than $10 billion worth of value over the past eight years courtesy of Australia’s "anything goes" capital raising system. However, progress is being made and toll road giant Transurban demonstrated this yesterday when it launched the 18th pro-rata accelerated institutional, tradeable retail entitlement offer since Origin Energy and Merrill Lynch pioneered the unique method in March 2001. The PAITREO is good for small investors because it is pro-rata and all non-participants are compensated in a book build, but retail investors get the additional advantage of being able to sell their rights on market. The retails rights trading is the key difference with the traditional AREO (Accelerated Renounceable Entitlement Offer), which Transurban did in April 2014 when it bought Brisbane Motorways. History shows that AREOs deliver inferior outcomes for non-participating retail investors. Look at Ten Network Holdings, where the institutional investors recently got 2c but retail had to put up with only 1c. Slater and Gordon remains the stand-out example of unfair AREO outcomes where retail investors who avoided the $890 million capital raising got just 1c but the big end of town and insider executives who sold in the earlier institutional bookbuild received $1.28, as Crikey explained at the time. Anyone who backed the Slaters' offer is out of pocket, and it has been the institutions that have been hit hardest. In hindsight, it was unfair on the institutions to make them commit to Slaters within 48 hours of announcing what has turned into a disastrous $1.3 billion UK acquisition that more than doubled the size of the company. Transurban’s institutional investors were only given 24 hours until 11am today to sign up for the 1-for-18 offer at $9.60, although they don’t have to pay up until December 8. However, at least this was just a $20 billion company bolting on 67.5% of one more toll road, which had a very clear operating record. By way of contrast, Slaters was effectively floating a whole new company overnight. For those Transurban institutional holders who hadn’t committed by 11am today, their entitlements will be auctioned off to other institutions tomorrow, all within the same trading halt that began yesterday morning when Transurban announced the $1.87 billion acquisition of the bankrupt BrisConnections toll road in Brisbane. However, when Transurban shares resume trading on Friday, retail investors will be able to see what the markets thinks of both the acquisition and the capital raising. Friday also marks the commencement of retail rights trading which will continue for eight business days through until December 8. Assuming that Friday’s announcement reveals that non-participating Transurban institutions will receive 50c in compensation, a useful measure for retail investors who don’t want to take up the offer will be to try to exit on-market for more than 50c during a market up-tick over the next 8 days of trading. Alternatively, they can wait until the retail bookbuild on December 18, but given notoriously low retail participation rates these can often be quite big and clear at discounts to the market price ranging between 1% and 4%. Unfortunately, for every step forward in the capital raising debate, there seems to be regression elsewhere in the market. For instance, Flexigroup has just completed a 1-for-4.46 non-renounceable entitlement offer raising $150 million. However, retail shareholders were not actually snail mailed the 50-page offer document, but instead only got this post card advising how to apply for one. By the time some shareholders, especially those in New Zealand, had received a printed version, it was too late to write a cheque. And for those Flexigroup shareholders who didn’t apply, their entitlements were just given away to other shareholders who were allowed to apply for extra at the same discounted $2.20 offer price. With the stock at $2.76 this morning, hundreds of retail non-participants have been badly diluted with no compensation -- all because the deal wasn’t renounceable. The chairman and controlling shareholder of Flexigroup is Rich Lister Andrew Abercrombie, the former Liberal Party treasurer who was defeated by Kelly O’Dwyer in the Higgins preselection contest when Peter Costello retired from Parliament. Unfortunately, Costello did very little to improve protection for retail shareholders during his 11 years as treasurer. It will be very interesting to see if Malcolm Turnbull and Scott Morrison take a different approach, as the capital raising system is a fundamental question of property rights which is in the DNA of most Liberals. And when you consider that most small investors tend to be Liberal voters, it remains puzzling how their party can sit back and allow a billionaire like Gerry Harvey to dilute 8000 small investors out of $2.5 million in value in a non-renounceable deal that he personally under-wrote. Strangely, there has been no mainstream media coverage whatsoever on this notorious Harvey Norman capital raising completed in January, which still remains perfectly legal in Australia. It’s a bit like director protest votes -- too often they ignored. The media coverage after Harvey Norman’s AGM yesterday was all about their only being a 6% protest vote on the remuneration report. But what about the 20%-plus protest votes against two of the directors, Chris Brown and John Slack-Smith? This wasn’t reported anywhere.