Effects of delisted shares

  • Business
  • Wednesday, 04 Jun 2003

Online investment advisor Surf88.Com writes on the effects of delisted shares

Delisting does not change ownership? First of all, we should stress that delisting does not change ownership. If you own 1,000 shares of XYZ stock now listed on the KLSE, you will still own 1,000 shares should XYZ be delisted. In this article, we would address the impact of delisting on shareholders. 

Implications of delisting. What should be noted is that delisted stocks would no longer be traded, which means that there is no open market to facilitate the selling and buying of shares.  

Upon delisting, shareholders looking to sell would have to make their own arrangement to find a willing buyer and to negotiate the transaction price on mutually acceptable terms. 

Given that delisted stocks are typically fundamentally weak, the chances of finding a buyer would be poor, to say the least. As it is, most affected PN4 stocks would have been given more than a year’s grace by the KLSE to regularise their financial conditions and if management fails to find a white knight during the extended time period, the scope for individual minority shareholders to find a buyer would be extremely limited, in our opinion. 

So what happens if one owns delisted shares? In such circumstances, what other avenue does a minority shareholder have to recoup his original investment? Not much,  

in our view, which supports our recommendation that you exit if you own any of the shares highlighted as having high delisting risks. 

To some extent, delisting is no different from indefinite suspension as far as minority shareholders are concerned, as they are left holding shares with no immediate realisable value. 

In fact, whether they have any value at all is arguable, as most of the PN4 candidates have fallen in breach of the Practice Note due to negative shareholders’ funds.  

This means that outstanding liabilities exceed assets as carried in the accounts, i.e. even if the affected company is able to fully sell assets at book value (distress sale is normally well below book value), the proceeds would not be sufficient to repay borrowings. 

There would be nothing left for shareholders as such.  

What’s more, there is little minority shareholders can do in the meantime, especially as delisted companies are taken out from the purview of the KLSE and the Securities Commission (SC), which means even less regulatory requirements. 

Exit as the best protection. While the KLSE has delisting as the final recourse to enforce compliance, minority shareholders will have very limited option in the event that companies are suspended/delisted. Even non-suspended PN4 companies are still subject to capital reduction risks, with shareholders most often ending up worse off. 

As for delisted shares, the likelihood of holding worthless investments is very real, the possibility of minority shareholders being kept in the dark for an extended period should not be ruled out. 

While there may be other avenues of redress including legal action, this is often not worthwhile for minority shareholders.  

The best protection would be to exit rather than to hope for a white knight in shining armour.  

And when listing status is at risk, the attraction, if any, would be further reduced. 

Delisting does not change ownership, but certainly takes away a valuable “asset” desired by most white knights. With ample warnings from the authorities, investors should take heed and SELL before it is too late.  

For more reports from Surf88.com click here

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