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Stock Exchange must rethink resumption of Angostura trading

Friday, February 18, 2011

This is second time in less than the week that I felt compelled to comment on issues concerning two publicly-listed companies on the T&T Stock Exchange (TTSE).  The first issue had to do with the need for greater clarity by Sagicor on their announcement of a potential deal by which the International Finance Corporation would invest up to US$100 million in Sagicor in exchange for new shares in the company and the likely dilution of existing shareholders. On this occasion, it’s about another announcement, this time by the board of directors of the T&T Stock Exchange on the issue of the resumption of trading in Angostura Holdings Ltd (AHL). The statement posted on the TTSE’s Web site late last Friday (February 11) states inter alia: “The T&T Stock Exchange’s (TTSE) board wishes to advise the public that a decision has been taken to resume trading in AHL’s ordinary shares effective on February 14, 2011. On July 13th, 2009 the board suspended trading in AHL’s shares because the company had failed to submit audited financial statements for the years ending December 31, 2008 and 2009, within the time period specified by the TTSE’s rules. “AHL has submitted all outstanding financial reports to the TTSE and has published these in the local newspapers and is now in compliance with the TTSE’s rules, hence the board’s decision to resume trading in AHL’s shares.” 

Now it is good to know that after much media pressure, AHL is now in compliance with the requisite reporting requirements in terms of the submission of its audited accounts. However, the TTSE has to be careful that it doesn’t act precipitously or prematurely by rewarding AHL with the resumption of trading in its shares. The more important and fundamental issue for the TTSE here—as evidenced by the company’s most recent unaudited financial statements as at September 30, 2010—ought to be that AHL’s total assets are less than its total liabilities by $160 million, giving rise to what is known in finance and accounting as negative equity or negative net worth. 

In other words, at this point in time, the company is insolvent and its securities or shares are without value. It should be noted that this particular type of insolvency is known as accounting insolvency and does not automatically equate to bankruptcy because the organisation may still be able to make its monthly payments when they become due. This is what essentially differentiates accounting insolvency from standard insolvency, which involves the inability to service debts. Nonetheless, creditors may force the company to restructure payments or declare bankruptcy, depending on the specific set of circumstances. This is a very similar situation to that of Angostura’s sister companies, Clico and British American, as highlighted by the Minister of Finance in his September 8, 2010 budget presentation, when he indicated that “as of June 2010, Clico and British American combined total liabilities were approximately $23.8 billion but total assets were $16.6 billion.” 

However, I hasten to add that it’s not all “doom and gloom” as I am advised that the core business of these companies remain financially viable and continue to generate positive cash flows. I also have no doubt that with a proper strategic plan, sound corporate governance practices and prudent financial management over time AHL’s and Clico’s equity/share value will be returned to positive territory. But I digress, as my real concern on this occasion is how could the board of the TTSE, in good conscience, authorise the resumption of trading of AHL’s shares, when in fact, what they would inadvertently be doing is exposing an unsophisticated investing public to the risk of purchasing a stock that is presently without value. But moreover, they would also be in breach of their own rules (see TTSE Rule 401 (4)(c) for ease of reference.)

Accordingly, I strongly suggest that the TTSE rethink its decision and that a more appropriate course of action would be to continue the suspension of AHL until such time that the company is able to demonstrate via its audited accounts a positive equity position. I also wish to take this opportunity to remind the Securities and Exchange Commission of its responsibility, under Section (6)(c) of the Securities Industry Act (1995) Chap. 83:02, to: “monitor the solvency of registrants and take measures to protect the interest of customers where the solvency of any registrant is in doubt.”

Peter Permell
Minority shareholders’ rights advocate
[email protected]


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