Friday, 6 September 2013 03:41
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Trading of shares halted for three days; suspension amidst fall of stock price and chaos among investors and customers
SEC starts fully-fledged investigation into affairs of troubled company; tougher action likely
Market welcomes move but some analysts term measure as coming too late
SEC probe likely to focus on whether TWOD Chairman’s sale of shares bordered insider trading parameters
Customers of timber plantations of TWOD in Thailand cry foul over unmet assurances
The crisis facing Touchwood Investments Plc (TWOD) took a new turn when the Securities and Exchange Commission (SEC) yesterday suspended trading of its shares for three days.
The capital markets regulator said that having carried out a preliminary inquiry into the conduct of Touchwood, it has decided to commence a fully-fledged investigation into the business affairs of TWOD.
The suspension came when Touchwood was trading on a falling market for itself. The share price dipped to a low of Rs. 1.20 before being suspended when the share was trading at Rs. 1.30, down by 20 cents. Around 2.4 million shares were traded when the suspension came into force.
Earlier in the week, the share plunged to an all-time low of 90 cents but recovered thanks to interest from speculative and bargain hunters.
Touchwood styles itself as the pioneer of the agro-forestry investment industry in Sri Lanka. It specialises in the cultivation of high value exotic tropical timbers as an alternative and sustainable source of forest products (mahogany, vanilla, sandalwood, teak and other cash crops).
Most stakeholders welcomed the action by the SEC, which has been carrying out preliminary investigations for more than a month. SEC is likely to take tougher measures in order to stem further erosion in TWOD’s value as well as investor/creditor confidence. But some analysts termed the action as coming too late.
However, it appears most of the investors who bought into TWOD since Friday didn’t treat the public notice of winding up application by a defaulted customer seriously. It was only on Wednesday that the company itself admitted via a filing to the CSE that there was an application and that it would be opposed and defended.
The majority of buyers also didn’t mind taking on fresh exposure to TWOD even after the Daily FT on Wednesday exclusively reported that among sellers on Monday was TWOD Chairman R. Maloney itself. He later confirmed the sale of 3.35 million shares or a 3% stake.
Good governance activists raised a host of issues with regard to the conduct of Chairman Maloney. His sale of shares was on Monday whilst the company disclosed the winding up application was filed because of Rs. 3.8 million due to a customer as claimed, and the case was opposed and defended only on Wednesday.
Maloney sold his shares at prices ranging between Rs. 1.80 and Rs. 2 per share, relatively higher than the current week’s lowest of 90 cents as well as yesterday’s closing of Rs. 1.30.
Analysts said SEC investigations would determine whether the TWOD Chairman’s action sans inadequate disclosure or non-disclosure was aimed at profiting or minimising losses – two motives linked to insider trading. The notice by legal firm F J & G De Saram appeared in a State-owned newspaper on Friday.
It said the Western Province High Court has listed a petition to be heard on 3 October over winding up Touchwood Investments following an application filed by a customer. It also said “any creditor contributory” to the firm who may want to support or oppose the action could get a copy of the court petition and be present at the hearing. Interested parties could make submissions before 2 October.
This was not the first time Maloney or related parties had sold their own shares. In July, Chairman Maloney sold 6.6 million shares between a low of Rs. 3.50 and a high of Rs. 4. Of the quantity, ASPIC Corporation in which Maloney is a Director bought 3.8 million shares. As at June 2013, Maloney was holding 10 million shares or a 9.35% stake.
In the week ended yesterday, 45 million shares of TWOD or a 42% stake had changed hands. The volume hit a high on Wednesday with 16 million preceded by 13 million on Tuesday.
Any loss suffered by shareholders is secondary when considering creditors to TWOD who fear major repercussions. The application filed by customer K.A.D.L. Priyanka Nanayakkara of Rajagiriya) is a case in point.
The Daily FT learns that several customers who have investment schemes with TWOD have had protracted issues ever since some of their investments matured. For example, one customer said they invested in a timber plantation in Thailand with the promise of harvesting in five years, which was in 2012. However the company had claimed that due to some failure, harvesting has been delayed by a further three years. Efforts by the customer to at least get 50% of the capital have so far failed.
As at end FY13, TWOD’s assets amounted to Rs. 8 billion, up from Rs. 6.8 billion in the previous year. Net asset per share was Rs. 29. If one factors in the latter, then the share trading at current prices is an insult. However, these are biological assets and in the past analysts had raised various questions on their accuracy.
Despite styling itself as pioneer and in business for over a decade, TWOD remains saddled with over Rs. 500 million worth retained losses. Liabilities amounted to Rs. 4.7 billion as at end FY13, up from Rs. 3.7 billion a year earlier.
