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SGX curbs on short-selling, contra trading also dent other small counters
Jasmine Ng
08 October 2013
Chaos and panic rippled through the market early yesterday morning as suspended counters Asiasons Capital, Blumont Group and LionGold Corp resumed trading, racking up large falls and spreading the contagion to other small stocks.
The three stocks, which boasted a combined market value of more than $9 billion before the Singapore Exchange (SGX) stepped in to query their share prices and trading activity last week, had $8.6 billion of that value wiped out in just two days.
Yesterday, investment firm Asiasons’ stock dived 89 cents or 86 per cent to 15 cents, on a volume of 89 million shares.
Blumont, which invests in minerals and energy, opened at 40 cents a share and then fell to 11.5 cents. It ended at 13 cents, down 75 cents or 85 per cent lower. More than 115 million shares were traded.
Gold miner LionGold, which requested that trading in its shares be halted pending an announcement, resumed trading only at 2.45pm. Its shares ended at 25 cents, after falling 62.5 cents or 71 per cent; a total of 45.7 million shares changed hands.
Until the SGX suspended their trading last Friday, the three counters had had strong run-ups in their stock prices this year; the regulator said it believed that the market might not have been fully informed of the companies’ circumstances amid the plunge in their share prices.
On Sunday evening, SGX declared shares of Asiasons, Blumont and LionGold designated securities, barring investors from short-selling the stocks and requiring them to pay for the transactions upfront with cash.
It allowed the counters to resume trading yesterday.
Traders The Business Times spoke to cited the SGX curbs as the reason for the sharp fall in prices. A broker who requested anonymity said: “There are not enough buyers in the market. Even though there are people who want to buy, they are prevented (from doing so) because they have to put money upfront with the brokers.”
He said the SGX should have halted trading for a few more days to give these investors time to secure cash, as banks are usually closed on Sundays: “At the very least, (SGX) should have given a day or two for people who are willing to buy to deposit funds with the brokers and get the funding in place.”
At broking firms, many were unclear about whether cheques received for trading in the affected counters could or should be accepted, said the head of the dealings team at a listed brokerage. Clients were told to rush to banks to withdraw cash instead.
In the backroom, officers were nervous about the huge amounts of cash they were handling amid the uncertainty over the counters. “It’s very ridiculous because we’re dealing with such large amounts of cash, like $100,000 or $200,000,” he said.
Remisiers and brokerages were also worried over the losses they could be saddled with if clients with unsettled contra positions on the suspended stocks could not or refused to pay for their stock purchases.
BT understands that UOB Kay Hian, the largest stockbroking firm here, had on Sept 26 restricted the online trading of 14 stocks and covered warrants, which included some of the stocks suspended by SGX.
The fear now is that broking houses which had not put curbs on the affected stocks could face sizeable defaults if clients cannot or do not want to pay up. These losses could end up on stockbrokers’ laps.
A trader at a local brokerage said: “Someone’s got to lose.
“Take Blumont for example. Its market capitalisation fell from $6 billion to less than $500 million. Just on the surface, there are at least $5.5 billion of losses out there.”
The panic triggered by these counters caused a sell-down in small stocks such as Albedo, CNA Group, EMS Energy and Mirach Energy as investors turned skittish. “The general sentiment has been badly hit,” the trader said.
Shares that suffered in the wake of the suspensions included Innopac Holdings, which lost 29 per cent in trading yesterday; ISR Capital dropped 30 per cent and ISDN Holdings, 13 per cent.
Before its trading resumed yesterday afternoon, LionGold announced that it was at “an advanced stage of negotiations” to acquire Minera IRL, a gold explorer in Peru, Argentina and Chile; it said that there is no certainty the acquisition would proceed. It had said last month that it was in talks to buy three gold mining assets.
Blumont also wrote to SGX yesterday morning to request for a trading halt to “help in the maintenance of an orderly market”. Noting that the SGX had announced only on Sunday evening the resumption of trading, it said that this had not given investors enough time to top up cash in their accounts, or given the company a chance to explain its position to shareholders.
The regulator turned down its request.
Blumont has called for a press briefing at 2pm today.
The ripples have spread to Australia, where LionGold has spent the last 11/2 years acquiring some of Australia’s “most marginal gold assets” in exchange for its own shares, reported the Sydney Morning Herald.
LionGold’s preference for scrip transactions has given many Australian investors exposure to the Singapore company, the paper said.