What Do Companies Gain and Lose from Delisting?

According to some experts, delisting is completely normal for a company, although this is unprecedented in Vietnam. But others express concern that this may give rise to a delisting trend at the present time. This fear is not groundless because, after SaigonTel, shareholders of Saigon - Quy Nhon Mining Corporation on April 21, 2011 approved the delisting plan and authorised the Board of Directors to choose a proper time to execute the plan. Shares bought back from individual shareholders will be used as treasury shares.

 

Opinions are mixed about the impacts of delisting on the stock market and each side has convincing arguments.

 

On the angle of market, this is the first time a company voluntarily applies for delisting and the main reasons are corporate restructuring and unsatisfactory fundraising on the stock market. Besides, investors underestimated the value of SGT shares. However, according to Dr Dinh The Hien, Director of the Research Institute for Informatics and Applied Economics, this reason is unconvincing because “this depends not only on investors but also on general market trends. When the market slumps, SGT shares and other listings are hardly out of the downtrend, but this does not mean that SGT shareholders wrongly estimated the value of their shares.” Mr Hien said many investors still keep the shares rather than sell them because they are waiting for a better market. And when shareholders invest in a listed company, they also expect good liquidity of target shares. Therefore, delisting, no matter bad or good, restrains the capital liquidity of its shareholders and precludes the opportunity of better liquidity when the market is better.

 

Sharing this view, equity research director of a securities company said delisting owing to market slump and corporate valuation is only one of many reasons. There are many shares with market prices lower than intrinsic value. If a company wants the market to value its shares correctly, it must have transparent information which indicates the value of shares. It must have a long-term strategic vision, because the market will inevitably move up and down. Share values are perhaps low this year, but they may be high the following year. Thus, information transparency is the best way to support share prices.

 

Looking at the financial fundamentals of SGT, investors see different reasons. Its return on equity (ROE) ratio is about 4.3 percent and the return on assets (ROA) ratio is less than 1.5 percent. These are very low rates compared with current bank rates. Putting side by side with respective ratios of 29.7 percent and 10 percent in the telecommunications industry, SGT is not good at all. As a result, the market value of SGT shares on May 10 was just VND7,500, while its liquidity was some thousands of units a day. With 74 million outstanding shares, this truth is hardly believable.

 

Remarking on SGT’s financial indicators, Mr Chu Duc Tuan, assistant director investment analyst at Wall Street Securities Joint Stock Company, said: The delisting for corporate reshuffle is a wise decision because it can apply for listing again. Concurring with this view, Mr Nguyen Khac Duan, Director of S&D Investment and Consulting Company, said: “The reason for delisting is completely persuasive since market liquidity is currently very low. If the market price is lower than the value in this context, this is a hardship for the company. In the meantime, it can find new investment opportunities or new products outside the market.”

 

On no matter what angle it is, the application for SGT delisting has clearly left impacts on the general market, including companies, investors and management bodies. In the short term, SGT can solve “pressing” concerns on the market but it has stained its corporate profile. It has also lost the trust and respect of authorities and investors and this will be a major obstacle against it, especially when it works or discusses cooperation with foreign partners. What’s more, the company may confront certain difficulties when it wants to be listed again. For investors, they will lose bullish expectations (because SGT is currently undervalued). For authorities, this is an unprecedented case which is very important to deal with without causing adverse impacts on any members on the market.

 

Many investors are worrying that SGT and SQC will not be the only stocks to apply for delisting.

 

However, an equity research director at a securities company said investors should not worry that this will lead to a wave of delisting. SGT is a peculiar stock. Most of its shares are held by major shareholders while small investors keep just a tiny proportion. As a result, the approval of the delisting is not a difficult task. For other companies, it is more difficult to raise enough votes for delisting.

 

However, investors should be familiar with such an issue when they invest on the listed market. Mr Chu Duc Tuan said if investors are holding stocks of undervalued companies and stock prices fall due to overall market decline impacts, they should not sell out their holdings but stay with the company until it gets well again. For companies with weak ‘financial health’, investors should sell out their stocks to divert investments when they apply for delisting.

 

H.N