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SGX's move to suspend stocks a case of 'damned if you do, damned if you don't'

The Singapore Exchange Centre in Shenton Way.

LET'S face it. When trading on a stock is suspended by the Singapore Exchange (SGX), the one thing buoying it from being booted from the bourse is hope - copious amounts of it - that it will one day be worthy of trading again.

That requires a near-miracle, because stocks that are shunted to the most unloved list on the exchange are already sinking under the weight of losses or soured street cred caused by alleged wrongdoing.

Suspensions usually follow a massive destruction of shareholder value. A market watcher quipped: "No stock has ever been suspended from trading near its 52-week high."

For example, back in March 2018, when the SGX moved to suspend trading on Yuuzoo Networks Group Corp's stock following serious audit-related matters, its price had more than halved; doubts hung heavily over its financial performance. The company is now under probe by the Commercial Affairs Department.

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In some cases, even after the suspension is lifted and trading resumes, long-suffering retail investors are not guaranteed an escape from uncertainty or heartbreak.

The words of SGX RegCo's head of listing compliance June Sim back in 2016 are thus cold comfort: She had said then that "suspension does not mean that it is the end of a company".

Three years ago, the stock exchange started giving its well-intentioned six-monthly updates of the companies on the suspended list, so as to keep shareholders in the loop.

A survey of these updates point to gloomy prospects.

For one, the number of suspended companies is growing; it had doubled to 41 in three years, as at April this year.

And of the more than 60 companies suspended over this period, roughly one in four were delisted.

One in eight made their way back to the bourse courtesy of reverse takeovers (RTOs), or as a result of other factors such as meeting the free-float rule.

Cash exit offers

Not all among those delisted walked away, leaving nothing for investors. Four of the 14 businesses that were delisted made cash exit offers via their controlling shareholders, thanks in no small part to SGX's engagement efforts.

They are electronics component maker Europtronic, Indiabulls Properties Investment Trust, China Hongcheng Holdings and Sunmart Holdings.

Based on data provided by SGX, suspended companies that made it out of the hole took an average of two years to launch a successful RTO or restart trading - a period that would seem like a lifetime for stranded investors unable to trade in and out of the stocks.

A fund manager in a US investment firm once said of the proclivity among China-listed firms to arbitrarily halt trading in their shares: "You can tolerate losing money, but you cannot tolerate not being able to trade."

Investors of suspended firms here can surely relate to that.

Jason Holdings took 41 months - a little over three years - to return to trading since its suspension amid audit discrepancies.

Just last week, it began a new chapter as Revez Corp following an RTO of a technology business. The Catalist-listed counter finished at 43 Singapore cents on Tuesday - up from 14.8 Singapore cents on June 10, the first day it resumed trading.

SGX's data thus underscores the reality that it is relatively easy to slip into suspended territory, but takes a monumental effort for companies to climb out of it.

Take China Hongxing Sports, one of the many S-Chips on the SGX's suspended list. Among the current bunch, it holds the record for having remained on the list longest since irregularities in its accounts emerged.

While the company's deal to acquire a gold miner under an RTO is a work in progress, it has been a hellish ride for investors, who have been in a state of flux for eight long years.

Truth is, white knights that are eager to pull off a backdoor listing on the SGX by swooping in to inject assets into these languishing firms are few and far between. For one thing, they may be repelled by the suspended companies' questionable governance that landed them in the soup in the first place.

And secondly, the hard-fought trading resumption does not always come with a clean slate. Take the case of China Fibretech, which was suspended for more than two years due to financial irregularities.

It resumed trading last September as Raffles Infrastructure Holdings, following an RTO of the construction firm, but uncertainty appears to dog the company amid an ongoing special audit launched under its predecessor.

This month, Raffles Infrastructure entered the SGX's watch-list for having posted pre-tax losses for three straight financial years; its average daily market capitalisation was less than S$40 million over the last six months.

Double-edged sword

SGX's perceivedly tough stance on indefinitely suspending trading in stocks is either cheered or rebuked - depending on who you ask.

An SGX spokesman said the SGX will order a suspension only when it is necessary to ensure a fair, orderly and transparent market.

Its key considerations include whether the state of affairs at the company in question are uncertain, and whether there is sufficient information for shareholders to make informed decisions.

One school of thought deems it necessary to guard the quality of stocks and the larger interest of investors. Suspending stocks of troubled firms can also protect investors from an imminent bear raid, they say.

Opponents to the tough stance argue that a suspension is a "death knell" for stocks and reduces the firm's chances of being rescued by a white knight.

But, until the statistics of suspended companies switch up to show more turnaround stories, it is pretty much a case of "damned if you do, damned if you don't" for the regulator.

READ MORE: Editorial: Suspending trading a necessary evil, but more visibility can help long waits