Published June 18, 2009

Is there abuse of share suspension?

By LYNETTE KHOO

	Email this article
	Print article
	Feedback

TRADING suspensions normally stem from good intentions: to protect shareholders pending the outcome of some developments affecting a company. But there have to be safeguards to ensure against abuses.

As some of the suspensions are indefinite, leaving shareholders on tenterhooks, the motive for the suspension request has to be seriously looked into. It does not help when trading suspensions are not accompanied by constant updates from the company.

One instance is when a company calls for a trading suspension amid a volatile share market on the premise that it is protecting shareholders from further plunges in the stock price that may arise from margin calls on some major shareholders or from the forced sale of their pledged shares. The question to ask here is who the company is protecting: shareholders in general or the troubled major shareholders? The point to make is that an indefinite suspension deprives shareholders of the choice of making decisions on their shares.

Though a company has to submit a proposal to the exchange with a view to resuming trading of its shares within 12 months of the date of suspension, it can be argued that this is not a drop-dead deadline. There are currently some 21 stocks on the SGX whose trading has been suspended for various reasons ranging from judicial management, the need to reassess financial situations to going-concern issues.

These reasons are among the circumstances cited under the SGX listing manual for a trading suspension to be granted, but they are not exhaustive.

While some reasons are legitimate, some market watchers say the risk exists that some companies could hide conveniently behind trading suspensions to gain maximum flexibility in doing M&As or other transactions on the sidelines without timely disclosures. Some have been using trading suspensions to prevent forced-sale of pledged shares and margin calls.

Arguably, trading suspension provides the breathing space for the company to negotiate with its creditors and bondholders. In cases where forced-selling results in an effective change of controlling shareholder, which in turn jeopardises continuity of business or could trigger a breach of bank covenants or default of convertible bonds, it could pose a risk to the going-concern status.

But such trading suspensions have stoked angst among shareholders, who feel they have missed the opportunity to dispose of their shares in the recent market rally.

There is also the perception that some companies are timing the trading suspension and resumption to suit themselves but at the expense of shareholders.

There's no easy way out of this dilemma. There may be as many shareholders who want a trading resumption to exercise their free will as those who would rather be spared of the spiralling downward effect of forced-selling.

While some shareholders of Guangzhao Industrial Forest Biotechnology Group lament about the trading suspension since last September to avoid the margin calls on pledged shares, they are also spared the agony of seeing their shares plunge when adverse developments surfaced. The counter-argument is again that they also missed the chance of making an exit in the recent rally

SGX does not give blanket approval to requests for trading suspension and extensions. As one market watcher puts it, the exchange takes on a non-systematic response as it is a judgment call.

But where trading suspension goes on for a prolonged period without any progress, there should be a drop-dead deadline. In the case of Maveric, it has been nearly three years since its trading suspension. Yet, the management doesn't seem to be close to injecting a new business into the shell company while the company continues to burn cash.

Another company Cityneon has been suspended since November last year after its public float fell below 10 per cent upon the close of a voluntary takeover by Laviani Pte Ltd as it hasn't managed to restore the public float to meet the requirement.

Market conditions and poor investor sentiment have been cited as reasons for the delay in raising the public float. But minority shareholders watching the recent market rally pass by them may again question the extended deadline for the company.

There needs to be sufficient grounds to justify trading suspensions and why the status should remain. This is especially important when shareholders remain clueless about the state of affairs of the companies.

A definitive timeline towards trading resumption being made public and regular updates on that progress may be in the right order.