In an announcement late Friday afternoon, after market close and just before the long weekend, AIM listed Fusionex announced that it will seek to delist from the AIM market. It’s not clear why this is good for private investors, the company is profitable and has no need to raise funds. The RNS says that a meeting will take place in Malaysia on 15 June to vote on the matter, and that all of the Directors representing 41.93% of shares are in favour. Almost all of these are in the hands of the CEO, Ivan Teh.
Unfortunately for investors, this would leave them with no official market in the shares. While there is an intention to put in place a matched bargain settlement facility, this is unlikely to provide much, if any liquidity. Syqic, another profitable Asian company which recently delisted itself, has a matched bargain facility. The trading volume in the last few months? Nil.
It appears that the cancellation notice has already been delivered to AIM in anticipation, with cancellation expected on 27 June, less than a month away. A further RNS before the market open this morning saw the resignation of joint broker Peel Hunt, as well as Chairman John Croft. The share price reaction today was brutal, with the shares down 64% by the close. Investors participating in the IPO in 2012 have lost two-thirds of their money – so far. Shareholders will soon be in grave danger of being faced with a ‘lowball’ bid for their shares if they want to realise any value at all.
Unless many of the non-Board holders vote against this delisting, it is sure to happen. While this is a Special Resolution, requiring 75% of votes cast, Mr Teh and a colleague control 54% of the shares. In order to be defeated, at two fifths of the remaining 46% of shares need to be cast against them. Unfortunately, voting turnouts are typically low for listed companies, allowing this type of behaviour to persist; it would take a concerted effort to defeat this resolution. The nominee system makes it difficult for shareholders to obtain timely information about corporate actions, and voting can be difficult or even impossible. This is particularly true given that the meeting is only 2 weeks away. All of this works to the benefit of the CEO who wishes to delist his company, and who will soon be safely away from regulatory scrutiny and market discipline.
The net result will be that yet another name is added to the list of Asian based companies which have turned out to be a disaster for investors. Naibu, Camkids, Hirco, Jiasen, Taihua, Asian Citrus, Syqic, and many more. In the absence of any support from AIM for investors in these cases, investors would do well to be ever more wary of foreign companies listed in London.
Please support our shareholder rights campaign to reform the nominee account system, and make it harder for managements to use the barriers this system throws up to discourage shareholders from voting in their own interests.
Mark Lauber
LSE rules on free float are http://www.londonstockexchange.com/companies-and-advisors/aim/advisers/inside-aim-newsletter/inside-aim-newsletter.htm
CONSIDERATION OF FREE FLOAT
AIM is an international market for growth companies covering a broad range of sectors with a wide range of market capitalisations. Given this, the AIM Rules take a principles based approach to ensure that they are relevant to the needs of such companies.
A company’s free float is an important qualitative assessment, which can have a significant impact on the ability of the company to attract investors and the functioning of the secondary market. Whilst we do not prescribe levels of free float, the issue of free float is something that we consider an important factor in the work a nominated adviser undertakes when bringing an applicant to market. Sufficient free float is fundamental to the orderly trading and liquidity of the securities once admitted to AIM, which is inextricably linked to the company’s appropriateness to be admitted to AIM.
Nominated advisers will be aware that we often ask them to provide us with details about the factors they have considered in relation to free float when seeking to bring a company to AIM. As a consequence, this is an area where we thought it would be helpful to clarify some of the factors we often discuss with nominated advisers, including the following:
Consideration should be given to how the securities are likely to trade when admitted to AIM, following discussion with the company’s broker(s) and potential market makers. We would expect consideration to be given to the spread and nature of the shareholders comprising the free float;
Failure to raise initial target funds (which in itself might give rise to free float questions) may be indicative of more fundamental issues of appropriateness and is a matter that should be properly explored by the nominated adviser;
Limited free float should give rise to questions about the rationale for the applicant to seek admission to AIM;
Where there are concentrated shareholdings (e.g. connected due to family, business or other interests/ connections) free float issues should be considered in conjunction with issues of undue influence, control and ongoing corporate governance arrangements within the company.
Date of publication: 1 June 2015
I have been talking to the QCA and gather that that free float will be opened up for discussion by LSE in a forthcoming consultation (which we, naturally, will respond to).
You will find some views of institutional investors on free float in the QCA’s most recent QCA/RSM Investor Survey…
http://www.theqca.com/news/briefs/128121/qca-rsm-small-and-midcap-investors-survey-2017.thtml
One particular quote from a fund manager in the QCA survey is worth repeating – “Investors should be knowledgeable enough not to invest in these areas – if a company is valued at £50 million and floats 25%, it is just not worth looking at.”