It’s been six months since the “new” management of scandal-hit Tongaat Hulett took the decision to suspend the companies listing on the exchange as well it’s secondary listing in London. The decision was taken following a huge accounting fraud discovery which has led the company to lose 57% of its value since the they first issued a cautionary SENS announcement in March, and 76% of its value over the whole year.
The SENS warned that a financial review had uncovered possible irregularities serious enough to require a review of prior period financial statements. The decision to suspend the company’s listing was, according to management, taken to avoid and protect investors from speculative trading in its stock. As the prior financial reports can not be relied upon, the value of the company cannot be determined accurately. The irregular “past practices” mean that reported results do not reflect the company’s business performance accurately. According to management Tongaat’s financial statements would need to be restated which would result in an expected reduction in equity of between R3.5 billion to R4.5 billion!
The stock was suspended on 10 June 2019 at R13.21 per share to allow management time to complete their investigation and give the market more reliable information about the company’s financial position.
“Whilst the Board is conscious that some shareholders or potential investors would prefer to retain the ability to buy and sell shares, the Board believes that the temporary suspension is in the best interests of shareholders as a whole.” it said.
The company’s board initially expected to be able to release its reviewed financial statements by the end of October and reinstate the listing; an overview of the financial report by PwC has since been published (link: http://www.tongaat.com/wp-content/uploads/2019/11/Key-findings-of-PwC-Investigations-29-Nov-2019.pdf). The PwC report pointed to 10 executives for wrongdoing including the company’s long serving former CEO. The board is also considering launching civil claims against the named executives to recover undue benefits paid to them based on fraudulent results.
We’re certain that the innocent investors who have collectively already lost billions of Rands this year over this scandal are anxious to see in which direction the stocks value will go once trading resumes; as we’ve seen with Steinhoff there could yet be a long way down.
InvestSure’s Suspended Trading Clause
On the upside this long suspension has for the first time triggered a fantastic client protection clause in InvestSure’s policy wording. Our policy states that if a company’s stock is suspended during a claims period (30 days), initially the claims period is suspended and then continues once trading in the stock resumes. If, however the share is not reinstated by the JSE within 3 months of being suspended; our policy holders get claims paid to them as if a maximum loss has occurred. Our clients also keep their shares to do with as they please once trading resumes! #SleepEasy