Metal alloy parts supplier, Nico Steel, on the SGX watch list since Sept 2016, has been directed by the exchange to delist. The company has called for an EGM on June 30, to seek shareholders’ approval to delist without an exit offer.
The company’s executive chairman Danny Tan says he has no means to do so to make an exit offer for other shareholders.
This means minority shareholders, some 1,400 of them, who have held on to the shares since trading was suspended on Nov 2020, would not have a ready platform to trade their shares when the delisting goes ahead.
The Securities Investors Association (Singapore), having heard from “concerned shareholders”, on June 23 sent a list of questions to Nico Steel, but as of June 29, has not heard back from the company.
Among others, the questions sent by SIAS, included those addressed to the company’s independent directors on their views relating to the delisting without exit offer proposal.
For one, SIAS had asked the IDs to elaborate on why wasn’t an orderly disposal of the company’s assets carried out, given that NTA as at Feb 2023 was US$16.1 million.
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SIAS also asked what did the IDs do to prepare the company to make an exit offer after the delisting notice was served by SGX.
While Nico Steel’s key operating units are in China, it has a property in Loyang. SIAS had asked if a sale and leaseback was considered so that an exit offer could be made without significantly and adversely affecting the company’s operations.
“Given that the voluntary winding up resolution is an option available to shareholders, did the IDs consider putting that resolution to vote at the EGM? If not, why not?” asks SIAS' David Gerald in the letter.
While Nico Steel did not respond to SIAS’ questions, it had on June 26 responded to shareholders who sent their different sets of questions ahead of the June 30 EGM, after the EGM circular was issued on June 15.
Nico Steel had reiterated in its June 26 response, which was posted on the stock exchange’s website, that it has no resources to make a cash exit offer, and that it isn’t trying to seek approval for delisting.
Rather, the EGM is to seek shareholders’ go-ahead to delist without making an exit offer.
"The delisting notification was issued to the company for a mandatory delisting, and is not voluntary," says the company, citing the exchange’s Rule 1315.
Among the questions from shareholders, were those asking how when they can get their “hard-earned money back” and if they can sell the shares back to the company.
In response, Nico Steel says it may in the future undertake a share buy-back, or when the company has distributable reserves.
“As and when the company’s financial position improves and it has distributable profits in the future, it may undertake a share buy-back exercise,” adds Nico Steel.
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Under SGX’s rules, companies might be placed on its watchlist if their market cap drops below $40 million for six months, or if they run three consecutive years of losses.
Nico Steel, having entered the watch list in 2016, had received two extensions in its bid to get out of the list. Its application for a third extension in Oct 2020 was rejected and was told to delist.
In its EGM circular, the company blames the trade war between US and China, plus the subsequent pandemic, for hurting its business.
Nonetheless, for its two financial years ended Feb 2018 and Feb 2019, it made operating profits and the following year, was cash flow positive. However, its market cap remained below $40 million and thus it didn’t meet that requirement.
At least over the last two financial years, Nico Steel is no longer loss-making.
For the year ended Feb 28, the company reported earnings of US$71,000, down 78% y-o-y. Revenue in the same period was down 21% y-o-y to US$16.4 million as the pandemic hurt operations. In addition, it suffered from a hefty currency loss of nearly US$1.1 million. As at Feb 28, the company's NAV was 0.3 US cents
On March 6, the company announced it has signed an agreement with a "major world-class personal electronic devices supplier and seller" to supply its proprietary eco-recycle material.
Nico Steel claims to be the first listed approved vendor in China for the supply of eco-recycle material to this major customer.
"Barring any unforeseen circumstances, the group remains cautiously optimistic on the outlook for its business in the next 12 months,” adds Nico Steel.
