BTCL risks lawsuit over share price fall
Isaac Pinielo | Friday July 15, 2016 18:00
The telecoms company did not disclose fully on the functioning of BPAH, which was supposed to act as a market maker to protect the share price as well as facilitate for shares to remain in the hands of Batswana.
Instead, three months after BTCL listing, BusinessWeek has learnt that the market maker is yet to start functioning.
Market watchers say retail investors on the BTCL counter, most of whom bought the shares for speculative purposes, now want to dispose of their stock. The problem, however, is that they cannot find buyers and this has led to the share price nosediving.
Overwhelmed by the huge number of investors who want to sell, the BTCL share price softened to 96 thebe this week translating to as much as P42 million of investor funds being wiped off.
At its peak, the share price rose to as much as P1.35.
While illiquidity has always dogged the Botswana Stock Exchange (BSE), analysts say rational investors bought the shares after drawing comfort on the fact that BTCL directors stated in black and white that the risk of lack of liquidity in trading of shares would be mitigated by introducing a market maker.
“As it stands, the official rules on market making are still undergoing refinements and consultations for formalised implementation, a critical element that BTCL did not disclose in the prospectus.
“On the surface of this matter, BTCL is at the risk of facing lawsuits from aggrieved investors, particularly if illiquidity persists and the share price collapses further, in the process wiping away shareholder value,” said market analyst, Ikanyeng Segonetso.
Warranted lawsuits from groups of investors are common in the regional and international markets. For instance, Facebook has gone through numerous lawsuits post the IPO where investors sued for systems and processes that did not work post the IPO as well as the information they believed was concealed in the IPO prospectus.
In this regard, Segonetso believes BTCL as a body corporate does not only face the risk of lawsuits in respect of the failure by BPAH to exercise market making, but its directors are also running the risk of facing criminal charges and getting convicted for “false statements by officials of companies”.
“The statements around market making for BTCL shares is quite material in nature, hence if BPAH does not come to party irrespective of the circumstances, these risks remain substantial particularly that the BTCL Board did not disclose the circumstances prior to the IPO, an action that is tantamount to concealment of vital information in the prospectus,” he said.
Another stockbroker with a leading firm said he believes the protectionism facility has played to the disadvantage of BTCL as the absence of foreign participation has greatly reduced demand.
The BPAH was put in place to facilitate that shares remain in Batswana hands.
“We now understand the market maker will only start functioning six months after the listing, but I don’t think this information is there in the prospectus. On other hand, post the IPO; I think they were supposed to get rid of the restrictive facility. It distorts the market. Foreign participation could have helped boost the demand for the shares. The fact that BTCL has a lot of retail investors who are mostly speculative also poses a great risk,” said the analyst, who declined to be named.
Sheyan Edirisinghe, director of PricewaterhouseCoopers (PwC) who are engaged to manage the BPAH declined to comment on the matter stating “PwC has strict policies over confidentiality of client information”.
On the other hand, BSE CEO, Thapelo Tsheole said they could not comment on particular companies that are listed on the bourse.
BTCL outgoing managing director, Paul Taylor stated that he is confident in the long-term future of the company, noting that their growth strategy is clear and on the right track.
He, however, declined to comment on the issue of market making.
Kwabena Antwi, an investment analyst at Afena Capital said the recent tumble in BTCL shares signifies the risk inherent in investing and that it highlights the importance of investor risk appetite in stock selection. “There are potential big wins as well as big losses. Investing in the stock market should be on a long perspective and not solely focused on short-term gains,” he said.
He added that it might be of more value for investors to evaluate their investment decisions over a period of a few years rather than a few months.
He said in its IPO prospectus, BTCL highlighted that there is a risk that its share may be illiquid, adding that so far this has not been the case.
“BTCL shares are traded on almost a daily basis allowing for good price discovery and visibility,” Antwi said.