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30-05-2011, 07:37 AM
For some of these companies, investors had more than ample time to bail out, but chose to hesitate until the firm was delisted.
May 30, 2011
For some investors NO EXIT that is worth taking
Spotlight on minority shareholders' welfare as firms delist without providing exit offers
By Jonathan Kwok
MARKET watchers are once again focusing their attention on companies that delist from the local bourse without providing exit offers, now that Catalist firm E3 Holdings looks set to be next.
The technology firm, which will delist tomorrow, said earlier this month that it will not be making any exit offer to shareholders, as it may not be able to pay all its debts and has not received an offer from any external party.
This has raised questions about the welfare of minority shareholders, who may end up with shares in the company that they will find hard to offload. While they may be legally entitled to the profits of the firm, it may be difficult in practice to get their hands on any cash generated.
'It's a Catch 22 situation,' said Mr Mano Sabnani, chief executive of Rafflesia Holdings, a business advisory firm.
'Companies that are delisted that are incurring losses, or have issues with accounts... the question is whether they have the money to do a buyout. There have been very few exit offers, and when there have been, it's often quite (low), just a token.'
Mr Sabnani said that while he does not blame the Singapore Exchange (SGX), firms 'get off quite easily' for not making exit offers.
He said the SGX should keep troubled firms listed. 'They may be suspended, but they should be made to pay listing fees and sort out the issues. Shareholders will have recourse to annual general meetings, and new investors may enter.
'But once they get out of public sight, they are off the radar... it's hard for investors to contact them, especially for S-chips incorporated in Bermuda and doing business in China.'
SGX rules say companies that want to delist should give shareholders a reasonable exit offer, but some firms have been allowed to leave after saying they are cash-strapped, and cannot find someone to step in to make the offer.
The Straits Times understands that there is no official list of firms that leave without an exit offer, but this dubious group is significant and growing larger.
Among the firms here to have taken that exit route include Chuan Soon Huat Industrial Group, Fastech Synergy, FM Holdings, China Printing & Dyeing, Oriental Century and Beauty China.
Troubled firms Rotol Singapore and Celestial Nutrifoods could join the list: They have been told by the SGX to delist and investors are still awaiting word of any exit offers.
Their latest available annual reports indicate these firms each had thousands of shareholders. Some have more than 5,000, so a substantial pool of individuals could be affected by each delisting.
Some other companies have provided offers deemed unsatisfactory by shareholders. Multimedia products firm General Magnetics was delisted in April last year and did not make an exit offer then.
Last month, investors reportedly finally won a four cent per share deal from General Magnetics' general manager but they feel the firm is worth more.
Experts warn such cases could create 'moral hazard' when other companies follow in the footsteps of firms to delist without paying minority shareholders.
'If you think about a company delisting, I could see some moral hazard,' said National University of Singapore Business School associate professor Mak Yuen Teen, who monitors corporate governance issues. 'The issue is whether the SGX has a greater role to play to ensure if the case is bona fide, whether it's in fact true that the firm can't make an exit offer, whether they tried hard enough to ensure a reasonable offer.'
Mr David Gerald, president of the Securities Investors Association of Singapore (Sias), said 'there is always a risk when investing in a listed company'. He added that as the law stands, retail investors cannot do much when companies move to delist without giving acceptable offers.
'Fortunately or unfortunately, we are in a buyer-beware market. There is no insurance for investments... when they invest, people have to watch the company carefully. If there is an early warning signal, then beware.'
Mr Gerald noted that the SGX has in place a watchlist for loss-making mainboard companies, which serves as an early-warning system for shareholders.
Companies that lose money for three years are put on the watchlist, after which they have another two years to return to the black. So, investors will have five years of warning before a loss-making firm is asked to delist, said Mr Gerald.
He suggested that investors can invest in exchange-traded funds when they do not have time to monitor individual companies.
The SGX has said that directors owe a fiduciary duty to shareholders and have to ensure that reasonable alternatives are provided to shareholders in the event of a delisting. It could not be contacted last Friday for queries.
jonkwok@sph.com.sg
May 30, 2011
For some investors NO EXIT that is worth taking
Spotlight on minority shareholders' welfare as firms delist without providing exit offers
By Jonathan Kwok
MARKET watchers are once again focusing their attention on companies that delist from the local bourse without providing exit offers, now that Catalist firm E3 Holdings looks set to be next.
The technology firm, which will delist tomorrow, said earlier this month that it will not be making any exit offer to shareholders, as it may not be able to pay all its debts and has not received an offer from any external party.
This has raised questions about the welfare of minority shareholders, who may end up with shares in the company that they will find hard to offload. While they may be legally entitled to the profits of the firm, it may be difficult in practice to get their hands on any cash generated.
'It's a Catch 22 situation,' said Mr Mano Sabnani, chief executive of Rafflesia Holdings, a business advisory firm.
'Companies that are delisted that are incurring losses, or have issues with accounts... the question is whether they have the money to do a buyout. There have been very few exit offers, and when there have been, it's often quite (low), just a token.'
Mr Sabnani said that while he does not blame the Singapore Exchange (SGX), firms 'get off quite easily' for not making exit offers.
He said the SGX should keep troubled firms listed. 'They may be suspended, but they should be made to pay listing fees and sort out the issues. Shareholders will have recourse to annual general meetings, and new investors may enter.
'But once they get out of public sight, they are off the radar... it's hard for investors to contact them, especially for S-chips incorporated in Bermuda and doing business in China.'
SGX rules say companies that want to delist should give shareholders a reasonable exit offer, but some firms have been allowed to leave after saying they are cash-strapped, and cannot find someone to step in to make the offer.
The Straits Times understands that there is no official list of firms that leave without an exit offer, but this dubious group is significant and growing larger.
Among the firms here to have taken that exit route include Chuan Soon Huat Industrial Group, Fastech Synergy, FM Holdings, China Printing & Dyeing, Oriental Century and Beauty China.
Troubled firms Rotol Singapore and Celestial Nutrifoods could join the list: They have been told by the SGX to delist and investors are still awaiting word of any exit offers.
Their latest available annual reports indicate these firms each had thousands of shareholders. Some have more than 5,000, so a substantial pool of individuals could be affected by each delisting.
Some other companies have provided offers deemed unsatisfactory by shareholders. Multimedia products firm General Magnetics was delisted in April last year and did not make an exit offer then.
Last month, investors reportedly finally won a four cent per share deal from General Magnetics' general manager but they feel the firm is worth more.
Experts warn such cases could create 'moral hazard' when other companies follow in the footsteps of firms to delist without paying minority shareholders.
'If you think about a company delisting, I could see some moral hazard,' said National University of Singapore Business School associate professor Mak Yuen Teen, who monitors corporate governance issues. 'The issue is whether the SGX has a greater role to play to ensure if the case is bona fide, whether it's in fact true that the firm can't make an exit offer, whether they tried hard enough to ensure a reasonable offer.'
Mr David Gerald, president of the Securities Investors Association of Singapore (Sias), said 'there is always a risk when investing in a listed company'. He added that as the law stands, retail investors cannot do much when companies move to delist without giving acceptable offers.
'Fortunately or unfortunately, we are in a buyer-beware market. There is no insurance for investments... when they invest, people have to watch the company carefully. If there is an early warning signal, then beware.'
Mr Gerald noted that the SGX has in place a watchlist for loss-making mainboard companies, which serves as an early-warning system for shareholders.
Companies that lose money for three years are put on the watchlist, after which they have another two years to return to the black. So, investors will have five years of warning before a loss-making firm is asked to delist, said Mr Gerald.
He suggested that investors can invest in exchange-traded funds when they do not have time to monitor individual companies.
The SGX has said that directors owe a fiduciary duty to shareholders and have to ensure that reasonable alternatives are provided to shareholders in the event of a delisting. It could not be contacted last Friday for queries.
jonkwok@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/