Unlisted Shares (# 349)

Simon Shares So Christo Wiese wants to sell his non economic but voting Shoprite* (JSE code: SHP) shares back to the company for some R3.6billion? I thinks not, albeit seems I am in a minority here. Afrimat (JSE code: AFT) has made a non-binding offer to buy a Universal Coal (an Australian company mining in SA). The deal is about half their market cap and at a price some 10% better than the next best offer that I knew about. They really are the masters of deals, paying a good price and making them work. But this one is a biggie and risks are much higher than the other smaller deals the've done. The latest SPIVA for South Africa is out and always it makes for bleak reading. 

* I hold ungeared positions.

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Unlisted shares, those not listed and trading on a recognised exchange such as the JSE.

There two ways we get unlisted shares;

We buy them hoping they will eventually list and become the next Uber (albeit Uber may be a bad example longer-term). We hold a listed share that delists and we keep ownership.

Now if you're buying ahead of a possible listing you're most likely some form of venture or angel funding - fun, but the majority end in tears and even fewer actually ever get to list.

If you've held onto a delisted share it's likely because you think it's a great stock with great potential and this may well be true. Most stocks that are delisted are because they offer such great value that somebody ants to own the entire company not just a slice if it.

However unlisted bings its own problems;

You have no JSE over sight. All are covered by the companies act but the JSE adds an extra layer of protection. For example director dealings, results within three months etc. Without this you're on your own, and sure you have rights as a shareholder and these rights are enshrined in the Companies Act, Act no. 71 of 2008 (well worth a read). But you'll have to enforce those rights yourself if required and lawyers will likely have to get involved. Often times communications is scant, late or frankly in some cases - never. Again you have rights, but now you need to enforce your rights at a cost. Serious lack of liquidity and price discovery. A lack of an exchange means how do you value the shares and how do you find a buyer when you want to sell them? This lack of liquidity generally means lower valuations as well. Very little or no media exposure and expert opinions on the stock and its prospects.

Personally I have never owned an unlisted company (except my own) and I never would. Sure there is potential for great profits, but the truth is most often what you end up with is hassles, legal fees and ultimately losses.

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