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B-Z story : The re-listing saga - Views on News from Equitymaster
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  • Sep 24, 2004

    B-Z story : The re-listing saga

    A few days back, a headline in one of the leading business newspapers caught our eyes. The news was about small companies scrambling to get themselves (their stocks) re-listed on the bourses. Note, the word used here is ‘re-listed’, and not ‘listed’. This is precisely what we shall try to focus on in this article here.

    The word ‘re-listed’ implies two things. One, that the company’s stock ‘was’ listed on the bourses in the past and second, it had been de-listed from the bourses for some reason. It must be noted that stocks are de-listed from the bourses if they fail to abide by certain rules and regulations set by the regulators (SEBI and Stock Exchanges) and do not meet certain norms (required to remain listed) as laid down by them. If this is the case, then why are they being allowed to re-list again?

    Well, technically speaking, and as per law, from the regulators’ point of view, if these companies manage to fulfill the requirements as laid down by them, there seems to be no clause that could stop them from getting their companies’ stock re-listed. It must be noted that the stocks under consideration here belong (but of course) to the B and Z category group of stocks. The presence of a stock in these categories in itself signifies the risk of trading or owning these stocks.

    But the question investors must ponder over here is that what has suddenly changed in these companies that has prompted them to re-list by complying with all the requirements of the regulators? The answer is not difficult to find. All these stocks are from the penny and small-cap categories and these categories of stocks have had a huge run over the last 15-18 months on the Indian bourses. Just to put things in perspective, while the Sensex has gained about 80% since April 2003, the BSE-500 has appreciated by 110%. However, within this, there are stocks that have surged by 5-10 times during this period. This has consequently led to the promoters of these companies getting back into action. Do you think they have suddenly become shareholder friendly? Well, think again…and again…!

    The table below throws some light on the behaviour of some of the stocks re-listed in recent times i.e. in the year 2004. Investors must note that these stocks (and many more) had been de-listed from the stock exchanges and have not been traded since a long time, some since 9 years!

    Company Price before
    Last traded
    Ace India 2.0 7.1 257% Highly illiquid stock
    Bihar Sponge Iron 2.5 7.0 180% Decent volumes
    Kamanwala Industries 5.5 10.7 97% Only 6 trading sessions
    in the month of June. Not
    traded since then
    NEPC India 1.5 8.9 514% Illiquid stock
    Orind Exports 1.1 3.0 184% Highly illiquid stock
    Pasupati Fabrics 31.1 8.9 -71% Not traded since the
    last few days

    As expected, these stocks have generally witnessed stupendous gains since their re-listing for reasons best known to the people trading in these. However, if one looks at the comment column above, barring Bihar Sponge Iron, all the other stocks are illiquid stocks. Further, a couple of them like Pasupati Fabrics and Kamanwala Industries are again not being traded. And if one had invested in these stocks on their re-listing, he/she has no other option but to wait for these to start trading again. And even then, owing to their low liquidity, there is a high possibility that not all investors would be able to liquidate their holdings. Lack of demand for these stocks would lead to suppression in their stock prices consequently forcing investors to book losses out of desperation to get rid of their positions.

    Thus, to conclude, we would like to caution investors to not get lured into taking exposure in these stocks. Rather, they should gauge the intentions of the promoters to get their companies back on the exchanges. Investors must note that the basic intention of these companies seems to be to ‘make hay while the sun shines’. Once the bullishness in the stock markets subsides and the small-cap story takes a backseat, the liquidity in these stocks will get automatically dried out. This would consequently, once again, lead these companies to falter on their commitment (as their stocks are no longer traded) towards abiding by the rules and the regulations of the regulators, which may, once again, lead them towards de-listing.



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