Morisons de-listing deadlocked on Sri Lanka rule

ECONOMYNEXT – A proposed de-listing Sri Lanka’s Morisons Plc, has hit a road block after minority shareholders opposed proposal for the parent to buy up remaining shares under existing rules which has also deadlocked other attempts to take firms private.

Sri Lanka has imposed tight minimum float rules – which critics have said is in some ways than the New York Stock Exchange – forcing many firms to go out of the stock exchange and de-list.

“…[T]he resolutions for the delisting of the Company from the Colombo Stock Exchange were not adopted by the shareholders of the company at the Extraordinary General Meeting…” the Morisons said in a stock exchange filing.

Under Sri Lanka’s rules on de-listing minority shareholders present at the meeting have to approve a de-listing by a show of hands without regard to the stake of the controlling shareholder.

The rule has prevented several firms from de-listing, despite the offer of prices above market to take firms private.

Hemas Holdings Plc, the parent of Morisons, had offered 850 rupees for what is called an ‘ordinary share’ in Sri Lanka and 700 rupees for a non-voting share. In August Morisons ordinary shares traded at 625 rupees and non-voting shares at 531.70 rupees.

Under general principles accepted internationally ordinary shares are supposed to rank ‘pari pasu’ or equal.

Earlier a unit of AIA Insurance was also unable to de-list despite offering an above market price. Insurance firms were at one time encouraged to list for governance and transparency.

The coercive minimum float rule also created an extraordinary situation of forcing Property Development, a unit of state-run Bank of Ceylon to de-list and go back into state hands, at a time when calls are being made for state firms to be listed, partly to improve governance. Even in communist nations, small stakes of state firms are being listed.

However minority shareholders blocked the de-listing of Property Development as well, with the aid of the rule requiring a show of hands.

In a well-functioning market firms can be taken private voluntarily provided the controlling shareholders have large majority of shares.

There are fears that the inability to take firms private, like in well-functioning markets will eventually discourage owners of private firms from coming for listings in the first place. (Colombo/Sept28/2018)