REFLECTION: Border Timbers Suspended from ZSE

Agricultural concern, Border Timbers was suspended from trading on the Zimbabwe Stock Exchange with effect from yesterday.

Background

This is after the company had requested for a voluntary suspension of trading in its shares from the local bourse while it awaits the outcome of the International Centre for the Settlement of Investment Disputes (ICSID) ruling over a land dispute with other stakeholders.

Accordingly the ZSE sought and was granted permission to suspend trading of the company’s shares by the Securities and Exchange Commission of Zimbabwe.

The move to suspend trading follows an international arbitration proceeding between Border Timbers, other private parties, and the Government, pending at the ICSID since 2010 in respect of the compulsory acquisition of its land.

According to Border Timbers, an award was issued in its favour in 2015, but Government subsequently filed an application to annul the award.

The final decision of the ICSID on the annulment application by Government is expected “any time from now.”

As such, the company applied for a temporary suspension from the local bourse as the outcome of the ICSID will have an effect on its financial statements.

Let's break down what this means for you.

Reflections

When a stock is suspended from listing, it usually suffers a loss in investors' confidence, as the company failed to meet the requirements of the trusted major exchanges. If the company remains delisted beyond a short period of time, institutional investors will likely stop researching and trading the stock, which means individual investors have access to much less information about the company. Liquidity and trading volume drop off as a result.

Sometimes a stock you have invested in gets suspended from the stock exchange. You get a mail from the depository or exchange or your broker for the same. There are several reasons for the suspended stock of a company. This article illustrates what happens if a stock gets suspended by the exchange from an investor’s perspective.

1. Corporate Companies
2. Investor
3. Financial intermediaries

The stock market is a cash-driven ecosystem. The main organism of this eco-system is the stock exchange. Firstly, a stock exchange is a hub for companies to gather funds from the public by releasing some amount of stocks in the primary market. Secondly, it is a hub for the traders/investors as an earning opportunity in the secondary market. The stock exchange is a private entity thus profit making is their main objective.

Stock market affects the economy of a country in various ways. It affects the cash availability in the market as well as the goods and services availability of the companies. It also provides several better saving option than the conventional ones. Thus the importance of stock market cannot be ignored in a country’s development.

The stock market is regulated by Securities and Exchange Commission (SEC). SEC’s objective is to protect the main entities of the market viz.

Stock delisting from exchange

There are mainly three reasons that a stock gets de-listed from an exchange. Main intent of this article is to focus on the suspension but you need to know the two other ones as well.

          Merger

When a listed company is merged into another listed company then the former’s stocks are not available on the exchange. Instead, the investor gets the stock of the latter in his/her demat account. The number of latter stocks is calculated based on the money invested in the former (taking into account the former’s stock value) and the latter stock value.
Buyback

If a company wants to increase its percentage in the promoter’s share it buys back the stock from the market. This is usually at a premium to the market price. You can tender your stock to get it bought-back by the company. 
Suspended Stock

 Now let’s see why a company gets suspended from the stock exchange.

A company gets suspended from the stock exchange mainly due to the non-compliance with the stock exchange rules and regulations. The stock exchange gives some time to the company to revise itself in the timeframe otherwise its stock will be suspended. If the company still doesn’t do the necessary then the stocks are suspended by the exchange.

In such condition, the stocks remain available in your demat account but the company doesn’t show on the trading platform thus no buy-sell is possible through the broker platform.⇯

Suspended stock of a company

Let’s understand about the consequences of suspended stocks of a company

Does suspension mean the stock value has become zero?

No. The stock value has not become zero, but the stocks are just delisted for trading on the exchange. These stocks are still available in your demat account. In case the company has gone bankrupt and closed then yes, the stock value has become zero.

What happens after the stock suspension?

If a company has gone bankrupt then its asset is first liquidated and the money is returned to the investors. But money is returned in a hierarchical format. Below is the image of this hierarchy.

So, in this hierarchy, the investors of the common equity are paid last. Yes, this is the riskiest mode in the stock market.

Is your money really gone if you are a common equity holder?

No, not exactly but yes in most cases. If the company has not closed and abides by the exchange regulations there is a chance (just a chance) that the suspension will be revoked and the stock will again get enlisted on the exchange.

Do I have any chance to liquidate my suspended stocks?

Apart from the one mentioned above, there is one more chance that you will able to liquidate your stocks. There are some companies which do research on the suspended stocks and if they find in their research that sometime in future the suspension can get revoked and company can become profitable they like to buy the suspended stocks. The buy price is decided by the buyer and is usually below the price at the suspension.