Monday, 18 June 2012

SGX shouldn't ignore investors' delisting concerns

In the Singapore share market (SGX) all is also not 100%, as can be seen from this letter in the Straits Times. Companies that are going to delist have to make an exit offer (and some pressure is brought on the majority shareholder to make it a decent offer), but in some cases no exit offer has been made. The writer is of the opinion that if no exit offer is made, the company should not be delisted, which seems a fair point.

The writer states also that unlisted shares are worthless, which might not necessarily be the case. But to own shares in a delisted company is indeed not appealing to most minority shareholders. Because of this, the share price will be depressed, which is again beneficial for the majority shareholder.

The rules are apparently different from those in Malaysia, but in both cases they are not ideal for the minority shareholders. They buy into companies because the shares are listed, and thus can be sold in the open market. The delisting threat has often be used to put pressure on minority shareholders, who don't seem to have an adequate protection against this.

On June 5, Sunray Holdings, which is listed on the mainboard of the Singapore Exchange (SGX), received a delisting notification and was told to inform SGX of an exit offer by tomorrow.

Despite being placed on the SGX watch-list since June 3, 2010, Sunray was unable to meet both the profitability and market capitalisation criteria for removal from the watch-list.

Ever since a watch-list for troubled listed companies was introduced in 2008, the investing community has seen a number of formerly listed entities compulsorily delisted from the SGX. Since the implementation of this policy, the SGX has not proven that this system is beneficial to investors and shareholders.

For recent delistings such as The Style Merchants (delisted on Feb 24 this year) and Firstlink Investments (delisted on Nov 30 last year), the SGX had similarly issued the delisting notification and instructed those companies to submit their proposal for an exit offer. Both companies were subsequently delisted without any exit offers being given and shareholders of both companies were left with untradeable share certificates.

Even General Magnetics, which was delisted by the SGX on April 1, 2010, is yet to provide the shareholders with an exit offer.

I really wonder why nobody at the SGX can see there is a flaw in the system. In all these cases, the companies were notified to inform the SGX of an exit offer prior to the delisting. Where the exit offers were not given, the companies should not have been allowed to be delisted.

Does the SGX not recognise that shareholders will be left with untradeable shares which are virtually worthless upon a company's delisting?

In effectively delisting the shares, thousands of shareholders lose their entire investments and millions of dollars in market capitalisation is wiped off the market. Does the SGX not see that the exchange itself is the creator of a market risk by causing shareholders to lose their entire investments?

Ultimately, the decision whether to delist a company should come from the shareholders rather than from the exchange.

The SGX should give more thought and explore all possible options before taking away a firm's status as a public listing.

Sadly, the SGX has chosen to ignore the discontent among the investing public regarding this issue.

Gary Teo

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