Tuesday 9 April 2013

"Not fair but reasonable", OTC, delisting, Bursa

Where is Ze Moola blogged many times about the "not fair but reasonable" issue, for instance here, here, here and here.

Malaysia-Finance wrote this article about it.

I am happy to say that the mainstream media also paid attention to it, The Sun here (an interview with MSWG's CEO Rita Benoy Bushon) and Business Times here.

These are all excellent articles. Just to add, some observations:
  • The "not fair but reasonable" description is a clear improvement over the past ten years, when almost all deals were deemed to be "fair and reasonable", pity it had to take so long time before this change came through;
  • Still, "not fair and (thus) not reasonable, reject the offer" would make much more sense; the "not fair but reasonable" judgement is (unfortunately) always followed by the advice to accept the offer;
  • If a privatisation offer is deemed to be not fair, then the directors should explain why they could not come with an offer that is deemed to be fair, what they have done to unlock the value of the assets, if they actively have tried to get an outside offer, etc.;
  • Companies are IPO-ed at a clear premium to their net assets, but many are privatised at a clear discount to their net assets, that doesn't seem right;
  • Quite a few companies that were privatised were later relisted again, all at a much higher price, in other words minority investors lost out, in some cases big time;
  • Most of these recent independent reports are regarding privatisations, I hope the advisers have the courage to judge Related Party Transactions also to be "not fair", because many are (unfortunately) not fair;
Regarding the delisting issue, Rita Bushon mentioned:

"Perhaps another suggestion is to have an over-the-counter platform for those minorities who wish to still remain in the delisted entity until and unless a compulsory acquisition is triggered," said Bushon.

"This would motivate majority shareholders to offer a better price at the outset and the minority would be more fairly dealt with. (But) this suggestion needs to be studied more in detail with the implications."

A letter to the editor of today's (Singapore) Business Times from Dennis Distant mentions the same:

"SGX needs to look at circuit breakers, OTC

When SGX extends its activities to new fields, it rightly deserves credit and receives it.

However, in its strategy to adopt the features of leading world bourses like NYSE and Nasdaq, it seems to have ignored features like "circuit breakers" and, more importantly, facilities to assist shareholders of companies which get delisted, leaving them with useless paper certificates although in theory they can still sell the shares if they can find a buyer somewhere.

NYSE offers the OTC (over the counter) facility and, though of less help but still an option, the "Pink sheet" for shares in companies not listed on major exchanges.

With the increased instances of delisting since SGX began inviting China-based companies to list here as what became known as the now infamous 'S-chips', it behoves SGX to help out the many victims created when these counters and others were eventually moved off the SGX boards.

Can SGX comment on the absence of circuit breakers, OTC and PINK Sheets from the list of services? Getting delisted is the end of the road but being moved to OTC can lead to a new lease of life as is currently the case in the US with American Airlines and Eastman Kodak."

Regarding the delisting and relisting issue: questions were asked on Bursa's AGM (from The Edge Malaysia):

At the AGM, a shareholder also asked what Bursa's role was following an  increasing trend of listed companies being taken private, wiping billions off the exchange. And after several years, these companies got relisted.

"When [privatisation and relisting of the same companies] happens, I think someone is making money but not us shareholders," remarked the shareholder.

To that question, Tajuddin responded:

"Bursa has engaged with its stakeholders on this. The conclusion was that these corporate exercises were business decisions .

I find that a very unsatisfactory answer, I think Bursa Malaysia should analyse this important matter and come with a much more equitable solution. That is, if it is really serious about trying to get retail investors back to Bursa.

Claire Barnes wrote:

"Efficient capital allocation is so important that stock exchanges should be run in the public interest. In practice, ownership by member brokers often worked quite well. Running stock exchanges for profit sets up huge conflicts of interest. I have noted some of these in the past. Others are clearly explained in this article on Bursa CEO pay and lack of retail investors. Stock exchanges are too important to be listed companies!"

The good news about this all: the attention to these (and other) issues shows increasing maturity in the Malaysian market.

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