Delisting – What does it mean for Shareholders?
Before coming to that, let’s first touch on what does it really mean – Simply put, de-listing is the removal of a security from active trading = means you can’t buy or sell it over the exchange. This occurs when a company goes private, is bought out, insolvent or fails to meet listing requirements. So what does it mean for Shareholders?
First off, de-listing falls broadly under 2 of these areas:
2. Involuntary / mandatory
Voluntary de-listing normally occurs if a company is acquired or goes private. Companies seeking to de-list often state lower costs and increased operational flexibility as key reasons. Generally, voluntary de-listing means that the buyers think that the market is under-pricing the company. And at current prices, they feel that value might be present.
In other cases, companies (especially those facing turnaround circumstances) feel that being private would allow the Company more breathing space and a longer time frame without needing to deal with the regulatory obligations of being listed. Other than a takeover bid, other methods also include something known as a Scheme of Arrangement, which we will not go into detail here
A high profile deal was Berkshire Hathaway Inc and 3G Capital Management privatisation of H.J. Heinz in 2013 – at a 19% premium over the stock’s all-time high.
Closer to home we have SC Global. In Dec 2012, SC Global’s Chairman and CEO, Mr Simon Cheong announced a voluntary unconditional cash offer at a consideration of S$1.80 per share, a 49.4% premium over its last traded price. SC Global was subsequently de-listed after the CEO amassed a stake of over 90% in Mar 2013.
Here are some SGX listed companies (de-listed in the past 2Y) that might look familiar:
2016: Tiger Airways Holdings Ltd, Zagro Asia Ltd & Lantrovision S Ltd
2015: Popular Holdings Ltd, STATS ChipPAC Ltd & Yong Xin International Holdings Ltd
INVOLUNTARY / MANDATORY DE-LISTING
Involuntary delisting occurs when a company fails to meet the listing requirements of profitability records and liquidity requirements.
An analogy would be to think of stock exchanges as exclusive clubs. To stay listed, a company has to meet the minimum standards set by the exchange. In other words, if a company messes up they would lose their listed status.
Now, as a case in point, let’s look at Ferrochina. Ferrochina announced a compulsory delisting with effect from Mar 2010 after informing SGX-ST that it was insolvent and would not have any resources to comply with the requirements of the Listing Manual. The company was deemed insolvent and not in any position to make a reasonable exit offer to shareholders of the company.
WHAT HAPPENS TO SHAREHOLDERS
For voluntary offers, typically existing shareholders are provided with an offer either via Cash or Shares of another entity in exchange for their current shares. You could then opt to accept or decline (do nothing) their Offer. This is all good until the Acquirer obtains more than 90% of the shares that it and its related corporation did not own to trigger Section 215 of the Companies Act. This would then allow the offeror to exercise its right to compulsory acquisition i.e. OSIM International Ltd.
On the other hand, if a Company is forced to de-list and assuming 1) no offer is given & 2) you are still holding on to the shares, then I guess that’s that – you can start to pray that the company re-emerges without much dilution. Pray hard.
On its own de-listing is neutral, it is neither positive nor negative. It would have to depend on the circumstances (Voluntary or mandatory) before passing any judgment. By ensuring that issuers maintain a certain standard, SGX helps to protect investors. Additionally if you are interested, here’s a blog that has a list of SGX companies that have been de-listed since 2007!
Submit your email address for important market updates and FREE case studies! We will only provide you with information relevant to value investing. You can unsubscribe at any time. Your contact details will be safeguarded The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Value Invest Asia’s personal capacity and do not in any way represent those of his employer and other related entities.
Disclosure: As at 12 August 2016, Mun Hong is not a Shareholder of the above mentioned Companies.