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Observers suggest trading be allowed but with restrictions in place
By Jonathan Kwok
03 March 2011
It is the nightmare of many investors.
They pour their hard-earned cash into a stock that looks like a winner, only to see the counter suspended from trading, often amid questions over the books.
These trading suspensions can go on for many months, even years, leaving investors in limbo, unable to cash out, even at a much lower share price.
The latest suspensions - of China Hongxing Sports and Hongwei Technologies - both recently hit by concerns over accounting practices, have cast the spotlight on other counters stuck in limbo.
More than 15 counters listed on the Singapore Exchange (SGX) are suspended, some since 2009 and others longer.
A variety of circumstances can lead to suspension - accounting problems, heavy debts or corporate issues, for instance. In some cases, loss-making firms are put on a ‘watch-list’ and have some time to turn themselves around, failing which they will be suspended and then delisted.
‘While we fully accept the fact that stock investments are risky, a trading suspension for an indefinite period of time is indeed very harsh for minority shareholders who get trapped into a stock without any possibility of an exit route due to the forced trading suspension,’ said Securities Investors Association (Singapore) president David Gerald in a statement on Monday.
SGX listing rules say suspended firms must submit a proposal to the exchange within 12 months on how to resume trading. They get another six months to implement the plan if SGX gives the go-ahead.
The firms can be delisted if they miss the deadlines though SGX has, on a case by case basis, offered time extensions.
Most suspended counters, such as the latest pair, are China plays or S-chips, with mainly mainland operations. Others, like Japan Land, are based elsewhere.
The SGX follows up on these cases, and many are making progress.
For instance, Zhonghui Holdings, suspended since late 2008, is undergoing a reverse takeover. Other suspended firms are moving towards a delisting.
Throughout the suspension, companies are expected to provide regular updates to investors on their progress.
But that is not enough for some observers, who want more help for minority shareholders keen to offload their stocks.
Mr. Gerald suggested trading in shares of troubled firms could be allowed, but with short-selling barred so that only genuine shareholders could sell shares. The SGX could also prohibit contra trading, margin, or leveraged trading on these counters. This would ensure there is no credit risk to broking houses, he said.
‘If considered necessary, the SGX may choose to place a ban on the management or controlling shareholders of the company from dealing in their shareholdings. This is if it deems that they are in possession of price-sensitive information.’
Some observers note that, in the US, counters known as ‘pink sheets’, which are regarded as risky investments, may be traded over the counter, even though they do not meet minimum listing requirements.
Mr. Mano Sabnani, chief executive of media and financial consultancy Rafflesia Holdings, supports continued trading.
‘I prefer fuller announcements, more details, and once the news is out, investors should be allowed to trade. Long suspensions don’t serve anybody’s purpose.’
Past cases show a suspension could sap the confidence of a company’s bankers, suppliers and staff, he said.
Mr. Sabnani had raised objections to the month-long trading suspension of Taiwanese lender Financial One late last year, just before it unveiled an exit offer.
Back then, he had said the suspension locked in the low share price before Financial One’s ‘derisory offer’ which it heralded as being above market price.
On Tuesday, SGX said that while suspending the shares of a troubled company such as China Hongxing is not desirable, allowing trading when a company’s state of affairs is unclear would be ‘more detrimental’.
National University of Singapore associate professor Mak Yuen Teen, who monitors corporate governance issues, agreed that it is prudent for the SGX to ensure there is adequate information in the market before trading can occur.
‘If you allow trading to continue, the market could assume the worst, so the stock price will continue to plummet - without us knowing the real extent of the problem.’