A number of listed companies had their private placement plans rejected by shareholders since the beginning of March in a rare show of shareholder activism in China, reports stockstar.com.

The private placement, a method of fund raising which does not seek capital from the secondary market and which could help to boost the development of companies, was not favored as the low issuance prices set were not in the interests of minority shareholders.

Listed companies in China raised more than 200 billion yuan through private placements in 2011, almost equivalent to the amount obtained through initial public offerings.

Chongqing Sanxia Paints (000565), a producer of paints and coatings, said on February 17 it will scale back its private placement, reducing the fund raising amount from a maximum of 699 million yuan to 516 million yuan, and lowered the issue price from 13.81 yuan to 6.17 yuan per share. The revised plan was rejected by minority shareholders on March 9.

In addition, minority investors rejected the revised private placement plans of power and heat producer Xinjiang Tianfu Thermoelectric (600509) and power generation company Shenyang Jinshan Energy (600396).

Tianfu Thermoelectric reduced the issuance price from 10.34 yuan to 7.61 yuan per share, while Jinshan Energy lowered the price from 8.2 yuan to 6.1 yuan per share.

Some investors demanded to know the real intention of the controlling shareholder of Tianfu Thermoelectric as the drop in the issuance price came at a time when the company posted a surge in profit.

Shares of Tianfu Thermoelectric were down 2.29 percent to close the morning session at 8.52 yuan per share.

According to Hu Zhuowen, an analyst at Orient Securities, under normal circumstances, private placements are welcomed by companies due to the cash injection and the planned projects which will help to boost earnings.

Small and medium investors are averse to private placements, especially when the issuance prices are set too low, added Hu.

The low issuance prices create a situation where the designated investors obtain good opportunities with low risk and potentially high returns, said Huang Jiazhong, vice professor at Shanghai Normal University's finance department.

During the 2006-2011 period, shares obtained from private placements with lock-up periods of one year generated average returns of 80.18 percent, according to a local mutual fund company.

Some investors of Tianfu Thermoelectric said in blog postings that they prefer rights issues, a method which allows all shareholders to participate in the capital raising.

It takes less time for regulators to approve private placements, and the requirements to conduct such placements are less stringent, said Li Daxiao, head of research at Yingda Securities