All about sus­pended shares

Finweek English Edition - - INVESTMENT -

Some­thing that many in­vestors have had to con­tend with is the hor­ror that is a sus­pended share. It sits in your port­fo­lio as a con­stant re­minder of one of your poorer in­vest­ment de­ci­sions; you’re un­able to sell it and, val­ued at zero it taunts you ev­ery time you view your port­fo­lio.

But why do stocks get sus­pended, what’s the process and is there any hope for th­ese demons in your port­fo­lio? To an­swer the last first, sure, a sus­pended com­pany will of­ten start trad­ing again, though the share price nearly al­ways takes a ham­mer­ing when the trad­ing starts again and the process is of­ten very drawn-out. Mov­ing on, why do stocks get sus­pended? There are two ways a stock gets sus­pended: ei­ther by the JSE or by re­quest from man­age­ment. The re­cent sus­pen­sion of SacOil was re­quested by the com­pany it­self af­ter share­hold­ers re­jected a pro­posed con­ver­sion of debt to eq­uity, which re­sulted in half the board quit­ting. SacOil is busy putting to­gether a new board and says it will be back – but the share price is likely to col­lapse when it starts trad­ing again. As I write this, the sus­pen­sion has been in force for just over a week and is likely to be re­solved sooner rather than later.

Man­age­ment will re­quest a sus­pen­sion when they are in breach of list­ing re­quire­ments (which SacOil was, with no prac­ti­cal board nor au­dit com­mit­tee), or if news has leaked (as hap­pened with Absa a few years back when it pub­lished its re­sults in the me­dia the day be­fore re­leas­ing them).

Bonatla Prop­erty Hold­ings has how­ever been sus­pended since Novem­ber 2010 and while there are oc­ca­sional SENS an­nounce­ments, it is not likely the sus­pen­sion will be lifted any time soon, leav­ing share­hold­ers frus­trated and un­able to exit their po­si­tion.

ArcelorMit­tal was sus­pended through a man­age­ment re­quest back in March 2010 when the Sishen Iron Ore deal fell apart. The stock lost some 20% in the days af­ter the sus­pen­sion was lifted. The JSE sus­pends a share when a com­pany is in breach of list­ing re­quire­ments such as late re­sults or for be­ing a cash shell. Re­sults are due within three months of the pe­riod end and, while the JSE does give some le­niency, even­tu­ally a com­pany that has not is­sued re­sults will be sus­pended. Once the breach of the list­ing re­quire­ments has been re­solved the sus­pen­sion will be lifted, so the is­sue is how long it takes to re­solve the is­sues. Some­times it can take ages.

The fi­nal way a com­pany can be sus­pended is if it en­ters liq­ui­da­tion, like 1time did late last year. In this case the stock re­mains sus­pended un­til the wind­ing up of the busi­ness is com­plete and the share­hold­ers are paid out what­ever is left (typ­i­cally a very small amount), af­ter which the shares are fi­nally deleted. This process takes years and share­hold­ers see very lit­tle, if any, re­turn.

So how does one avoid be­ing caught in the sus­pended share trap?

Some­times one can’t (the ArcelorMit­tal sus­pen­sion cer­tainly came out of left field). But gen­er­ally sus­pended shares are smaller stocks that are strug­gling; re­sults are poor, cash is tight, di­rec­tors may be leav­ing – sim­ply put, the ship is f loun­der­ing. In­vestors of­ten in­vest in th­ese stocks hop­ing for a mas­sive turn­around in the busi­ness but only to see the share shoot­ing the lights out – but as we’ve writ­ten be­fore, losers gen­er­ally re­main losers and one is best ad­vised to heed the warn­ings and get the heck out be­fore the sus­pen­sion de­mon ar­rives.

Si­mon Brown is a Fin­week con­trib­u­tor and heads ju­s­, a free re­source of f inan­cial in­for­ma­tion and in­vest­ment ed­u­ca­tion.

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