SGX has in place various rules and regulations that listed companies have to adhere to.
Companies that make three consecutive years of losses and whose market capitalisation has fallen below $40 million will be placed onto a SGX watch-list. If the companies on the watch-list are unable to turnaround their situation after another two years, they will be forced to delist.
Rules 1306 and 1309 of the Listing Manual then states that a reasonable exit offer normally in cash should be made and that a voluntary liquidation of assets may be conducted to raise the cash.
Unfortunately, a lot of companies that fall into this category have been unable to make an exit offer (due to a lack of cash) and as a result minority investors are left holding untradeable (and worthless) shares.
Associate Professor Mak Yuen Tee had made a very valid argument that the current state of delisting has deviated from the original intent of protecting investors, and that SGX should review its rules.
This view is shared by investors like Gary Teo, who also wrote to the ST Forum.
For the time being, the official position taken by SGX is that the rules are in place to protect investors:
SGX listing rules seek to protect investor
SGX explains due diligence provisions in delisting protocol
What are your views?
A case in point is the recent delisting of Sunray.
The company approached the five biggest shareholders and asked whether anyone of them could make an exit offer. None of them could, citing lack of financial resources.
A voluntary liquidation was rejected by the board as they felt the business could turnaround in the future, and that less than 5% of the company’s net tangible assets could be realized in a sale (Why is this so?).
The board was also unable to find a buyer for the entire company.
The proposed solution is that Sunray would mortgage off its office to get a loan, and then use the money to pay out a final dividend to shareholders, do a capital reduction, or buy-back shares.
The suggested loan size of RMB$4.3 – 4.5million and outstanding number of 335 million shares meant that even if a dividend was paid out, each investor would only receive around RMB$0.013 per share. The shares of the company traded at S$0.008 as at 4 July 2012.
To add insult to injury, it was mentioned that there is no certainty that Sunray can secure that amount of loan or even a bank loan in the first place.
So in all likelihood, minority investors will once again be left with worthless shares.