Delistings: Take the Money and Run

by Paul de Gruchy, Director, ShareSoc

One of the aspects of investing that is rarely discussed, and yet often provokes ShareSoc members to approach us for help and advice, is what happens when a company is delisted.

The LSE is a public company, and so is keen to increase revenues by listing as many companies as possible. But all too frequently companies list, raise money, and then for whatever reason, delist from the market. Shareholders are left with shares in a private company which are highly illiquid, and a board which cannot easily be held to account.

While never a good thing, some delistings are managed better than others. An example of an orderly delisting is provided by Albert Tech Limited. This was a disruptive technology business that felt the uncertainty over its business pipeline and uncertain future revenues meant that it needed a strategic investor, and probably felt that the costs of maintaining a listing could be better spent on developing the business. So it held an EGM, where it was decided to delist, but it also put in place a facility at Asset Match allowing shareholders to continue to deal, and they provide a quarterly bulletin for those still holding on. It is illiquid, but it has done its best.

But more often, businesses are delisted as a result of a failure to file accounts or the Nomad walking away. There is no vote, and no opportunity for investors to “get out”. It is simply the default option when there is a failure of corporate governance. There are a few examples of this that have affected our members recently.

Another example that members have raised concerns about is BMR, which was a natural resources company focussed on producing lead and zinc from mine tailings in Zambia. BMR was delisted in August 2018 because its Nomad resigned and needed a replacement. BMR had informed shareholders they were in talks with another Nomad, but apparently this fell through because there was not enough time to call an AGM to propose the asset disposal, and therefore was forced to delist. But it still had shareholders and an apparently valuable asset. There appear to have been a web of various joint ventures and royalty rights which do not, however, currently produce any revenue for BMR, despite the Kabwe project supposedly being fast tracked by Jubilee Metals when they took over the project back in August 2018. Meanwhile, the company consistently rebuffed approaches from shareholders, asking for proof of identity and claiming that any attempt to hold an EGM would prejudice the activities of the company.

Another example is Syqic, a business focussed on providing TV content in the Philippines and Malaysia, but ended up getting suspended for late filing of accounts. When these were finally published, the suspension was maintained pending ‘clarification of the company’s financial position’ – a cop out, but the clock kept ticking. At the end of 6 months it delisted without a shareholder vote – by the back door. A dealing facility was promised, but never materialised. Regular information was promised but never happened. And then, according to bulletin boards, the business is rebranded and relaunched and starts making profits. Without the previous shareholders who appear to have lost everything.

There is a general pattern to many of these delistings. The company has overseas activities and a board that continues to draw salaries despite making no visible progress. Assets are often the subject of joint ventures and earn ins which make it very difficult to understand what is happening. Cash is always running low, not helped by the director salaries diminishing a dwindling pot. Through it all is the sense that nobody cares about the investors. The endgame is often the company being wound up, with no assets, and the directors reappearing in another entity which has somehow ended up owning the assets the company once held. To a child, it might look like theft. A PR person would no doubt describe it as “a corporate restructuring with experienced directors focused on creating shareholder value”.

One of the stranger recent examples was Appscatter plc (APPS), a company which was briefly ramped all over bulletin boards. It claimed to be a “scaleable business to business (B2B) software as a service (Saas) platform”, which seems more like an attempt to play jargon bingo than an actual business.

But APPS was admitted to Aim in September 2017, raising £7m in the process and backed by Smith & Williamson Corporate Finance as Nomad and joint broker and Stifel as the other joint broker. These are big city names. There was an acquisition in April 2018, with another £15m being raised, then another fundraising in October 2018, for £968k. At that point Smith & Williamson and Stifel departed and were replaced by Finncap.

A further placing for £2.2m was announced in April 2019, followed by announcements of subscriptions not being released and a request to be suspended from AIM pending clarification. On 21 October 2019, APPS announced it was cancelling its AIM listing, presumably because it had been suspended for 6 months. Since then there have been suggestions that it will relist under the name Airnow plc and that it has secured significant institutional funding ahead of a proposed IPO. But who knows if the previous shareholders will see any of the new company? The last post on ADVFN was on the date of cancellation, so draw your own conclusions.

The LSE is keen to get companies to list and raise money, but do very little to stop companies from delisting and walking away. Indeed, without a Nomad or up to date accounts, a company will be suspended and their listing cancelled, so by simply not co-operating with accountants a board can deliberately get a company struck off. If you are a less than scrupulous overseas director of a company with overseas assets, that might be an attractive option.

There need to be more incentives to stop this happening. Rather than a company without accounts being delisted, would it be better if the existing board members were removed without compensation? Or at the least, require an EGM where the board can be questioned and held to account?

A listing should be regarded as a privilege that has to be earned, not a carte blanche to raise monies and then disappear.

DISCLOSURE: Paul de Gruchy has never owned shares in any of the companies mentioned in this article.