"Grounds for some concern on Sigma stock suspension
* Bryan Frith * From: The Australian * March 24, 2010 12:00AM
AGAIN, it seems the question needs to be asked: why do the shares of Sigma Pharmaceuticals remain suspended from trading on the ASX?
For that matter, why were they suspended in the first place? Why did the directors consider it to be necessary to deprive the shareholders of the ability to trade their securities?
Sigma shareholders have been unable to trade in their securities since February 25, when the company obtained a two-day trading halt. It was said to be needed because Sigma expected to make an announcement on March 1 in relation to revised earnings guidance "arising from year-end adjustments".
But on March 1 Sigma obtained a suspension from trading until it could make the announcement concerning revised earnings guidance.
It expected to do so before the release of the preliminary final results, which was expected by yesterday. But on Monday Sigma announced it required more time to finalise the 2010 accounts, which would now be made public "on or before" March 31.
The company is now unsure whether it will release earnings guidance ahead of the preliminary results, but it seems unlikely given the results are supposed to be only a week away.
If Sigma does meet the March 31 deadline, its shares will have been suspended from trading for almost five weeks. Suspension is a drastic step and should only be agreed to by the ASX as a last resort to avoid distortion of the market mechanism.
The ASX encourages trading halts and/or suspensions where companies are unable to make an announcement that is sufficient to properly inform the market, but arguably, it was never intended it be employed for long periods of time. Yet there have been a number of instances in which extended trading suspensions have occurred.
In two cases, MFS/Octavia and ABC Learning, trading was never reinstated. After long suspensions both companies were placed in administration.
OZ Minerals and Nexus Petroleum were both suspended from trading for 2 1/2 months while the companies arranged asset sales to reduce crippling debt levels.
Transpacific is perhaps the most flagrant example. Its shares were suspended for five months while it sought to put together a recapitalisation to reduce its $2.1 billion load, which finally ended with an $800 million capital raising that resulted in private-equity group Warburg Pincus becoming a cornerstone investor, with 18 per cent of the capital and warrants over a further 7 per cent.
Although that deal fleshed out the details of the recapitalisation, it essentially confirmed what Transpacific had said at the outset. Arguably, therefore the market was adequately informed during the entire five-month hiatus and the suspension need never have been imposed in the first place. Other companies in similar situations have not pressed the suspension button.
Asciano conducted a 12-month "monetisation process" to reduce its crippling $4.8bn debt load, which ended with a $2.35bn equity recapitalisation that was heavily dilutive to retail securityholders, but at no stage sought suspension. Nor did Centro Properties during its 13-month journey to restructure its debt. Companies generally are required to make immediate disclosure of any information that a reasonable person would expect to have a material effect on the price or value of a company's securities.
In complying with the continuous disclosure rules, companies are required to consider maintenance of investor protection and the need to protect the market's reputation.
The interests of a listed entity should not take precedence over the interests of an informed market. Companies are required to comply with the continuous disclosure rules and maintain an informed market while their shares are suspended.
Sigma advised on Thursday that as a result of increased recent market pressures, particularly in the generics business, the future cash-flow forecasts that supported the carrying value of goodwill had declined and as a result there was likely to be a material reduction in goodwill on the balance sheet.
Moreover, the full-year results were likely to be hit by certain adjustments to reported profits, relating to items such as inventory provisioning and write-downs, redundancy provisioning and licence-carrying values. Sigma admitted that as a result of the adjustments, its banking covenants would need "revision and renegotiation" and it was in discussions with its lenders.
It still expected to meet yesterday's deadline but said on Monday that it needed more time, yet gave no explanation. The ASX was not satisfied and wanted an explanation.That forced Sigma to admit it was in dispute with its auditors, PricewaterhouseCoopers, over "various unresolved issues" that arose in the course of the audit.
Sigma maintained it was in full compliance with the continuous disclosure requirements and the ongoing suspension of trading, while regrettable, had been necessary to ensure trading in the shares occurred only in the context of a fully informed market. The company was not yet in a position to provide full information, pending resolution of the matters outlined, but expected to be able to do so on or before March 31. That suggests Sigma considers shareholders and investors should not be able to trade in the shares until the issues with its bankers are finalised and the details of writedowns and such can be full quantified and disclosed.
But the continuous disclosure test does not require investors to be "fully informed".
The continuous disclosure test is one of reasonableness, whether information is materially price sensitive and a reasonable person would expect it to be disclosed.
Nobody suggests trading should be suspended until the outcome is determined.
Investors are alerted to the situation and are aware more is to come but they are allowed to continue trading. And that is how it should be.
If Sigma is under pressure from the ASX then why couldn't it have provided that information in the first place?
And in this commentator's opinion, that degree of information would have been sufficient to satisfy the usual concept of an informed market and suspension of trading would not have been warranted or justified.
Moreover, a reasonable person wouldn't have expected it."
SIP Price at posting:
90.0¢ Sentiment: None Disclosure: Held
