Watchlist Delisting

[Nebula]

Hi Buddies,

does anyone know what happens to shareholdings of a company that has been delisted via the watchlist?

does it become an OTC stock and how does one sell small amounts of such stock?

[CityFarmer]

Hi Buddies,

does anyone know what happens to shareholdings of a company that has been delisted via the watchlist?

does it become an OTC stock and how does one sell small amounts of such stock?

Base on the SGX rules, the issuer (or the controlling shareholder) must make a "reasonable" exit offer to all remaining shareholders. At the mean time, the share will remain in suspension.

In theory, the "reasonable" exit offer shouldn't be zero, and it shouldn't be a "good" offer too.

[Debronic]

Hi Buddies,

does anyone know what happens to shareholdings of a company that has been delisted via the watchlist?

does it become an OTC stock and how does one sell small amounts of such stock?

Base on the SGX rules, the issuer (or the controlling shareholder) must make a "reasonable" exit offer to all remaining shareholders. At the mean time, the share will remain in suspension.

In theory, the "reasonable" exit offer shouldn't be zero, and it shouldn't be a "good" offer too.

This is not an hard and fast rule though in practice. These watchlist companies have struggling businesses with poor financials. While the companies can try their best to procure the major shareholders to make an offer, many times these shareholders will just say that they do not have the finances to do so and SGX wouldn't be able to do much about it.

If you put yourself in the shoes of the major shareholders, you can see why too. No need to take on additional risk when you will get to control the company anyway when it's delisted. It is unfair to the minority shareholders for sure but this is the sad reality of our capital markets.

[ghchua]

Hi Debronic,

If the major shareholders has no finances to provide an exit offer for a company facing delisting due to being in the watchlist, minorities should push the board to liquidate the company and return whatever cash that is left in the company after liquidation.

Since the business is still struggling, it is better dead than alive so why still in business? The reality is that even companies go ahead and propose liquidation to shareholders, minorities still cannot out-vote the major shareholders if they choose not to support liquidation.

I once asked a director of a company facing delisting why you recommend shareholders to vote for liquidation when the major shareholder is not supporting it. He said that he has to recommend what is best for shareholders and it is up to us to decide which way to vote. Sometimes, the best for shareholders might not be good enough as you are the minorities.

[Nebula]

Thanks for the replies.

the company in question for me is Jadason Enterprise, a net net of $44 mill with the company trading at $12 mill.

seems like a well establish company facing some head winds and looks like pretty good value except for the fact that they are on the watch list and i'll end up with difficulty selling if they ever get delisted on unfavourable terms, ie no exit offer

was thinking of placing a small punt and including it into my net net portfolio

any advice?

[CityFarmer]

Let me share two relevant case studies of mine, on the topic.

The case study of Jets Technics proved Debronic's view. The company was in watch-list due to loss-making on Sept 2008. As the firm could not meet the conditions to exit, it was suspended on Sept 2011. The Chairman was asked for "reasonable" exit offer, but no offers was made. SGX issued a reprimand for breaching the rules, and advised all SGX-listed companies not to appoint the Chairman as director or management team. The company was delisted later Oct 2013. It take two (2) years to settle down to become private company, and without an exit offer.

The case study of FDS Networks meet ghchua's proposal. The liquidation was turned down by controlling shareholder, and became a private company, without an exit offer. In this case, the controlling shareholder still think the company is survivable, even as private company.

Are there any "happy" cases? Yes, Ionics EMS made an exit offer, and delisted. General Magnetics also a happy one, albeit after a long way.

(sharing from my record, and hopefully it helps)

[Debronic]

Thank you CityFarmer for doing the hard work! I actually recall from my memory quite a few of these cases but did not have the time to go dig them up. Hehe...

Hi ghchua, yes, liquidation is one possible way for investors to salvage something but like you rightly pointed out, ultimately the controlling shareholders call the shots. Furthermore, some companies cannot be liquidated easily unless it is at fire sale prices e.g. those with lots of illiquid fixed assets. So if there is a possibility that the company can survive, the major shareholder might just let it continue as a private entity. Even if he does not think it can survive, he might use this as an excuse not to liquidate now so that he can do it later under much more favorable conditions.

It is an imperfect system for sure. As equities investors, we just need to be cognisant of the risks that comes with investing in these companies.

[ghchua]

Hi CityFarmer and Debronic,

FDS Networks is a classic example whereby minorities lost out. There is no problem liquidating the company at all. In fact, the company holds almost all cash and nothing else. The company was delisted by SGX because it is a cash company with no business. In this case, I would actually expect SGX to push the company for liquidation, or at least propose a special dividend before delisting since it is a cash company. Why become an unlisted cash company with no business? Doesn't make sense at all. An unlisted shell is not attractive to do a RTO. Its shell value is almost zero and therefore the chances of it being injected with a new business is almost zero. Why inject a business into an unlisted shell and then list again? Might as well do a IPO.

Sunray Holdings is an example whereby it has existing business relationships and assets. As Debronic had pointed out, it is not easy to liquidate and the company might have to do a fire sale of their assets. However, since it had been loss making for many years and had been in the watchlist, SGX wanted to delist them. They proceed with the delisting process and proposed liquidation. Liquidation was not approved but they paid a special dividend. I think what they did make more sense than FDS Networks.

[specuvestor]

Nice discussions on theory vs reality

Again the key is to recognise the difference between SGX listing and Companies Act. They are totally separate issues. The worst thing SGX can do is to delist you. A company doesn't die from delisting

And when a company doesnt care whether they are listed or not, there is no more bite from SGX

SGX thus cannot enforce exit offer, liquidation or dividend payouts. Oppression of minorities is under Companies Act and in some extreme cases, one has to prove a case for CAD or MAS to act. And jurisdiction are important for authorities to act. These are the details of structures that many investors neglected.

[ghchua]

Hi specuvestor,

What you said is true and for minorities, sadly there is nothing we can do. FDS Networks is incorporated in Bermuda and it is not even under S'pore Companies Act! Get a Bermuda law expert? Well, the cost is not even worth it for a small minority shareholder.