Zebit Inc (ASX: ZBT) has formally applied to the Australian Securities Exchange (ASX) to be removed from the official listing of companies on the ASX. It has in effect requested a voluntary delisting.
The Delisting will be put forward for shareholder approval at a general meeting that's set to be held on 16 March 2022.
The company broke the news in an announcement today, sending its shares hard to the floor and finishing more than 55% down on the day at 8.6 cents.
Why is Zebit delisting from the ASX?
Zebit believes delisting will be in the best interest of the company for a number of reasons. These are primarily centred around the lack of liquidity in the trading of its securities, as well as administrative costs in maintaining the listing.
Essentially, "the costs and administrative burden of remaining listed on ASX outweigh any benefits associated with remaining listed", it says.
Zebit is listed on the ASX in the first place as a chess depositary interest (CDI), an instrument that allows foreign companies to raise capital and list on the exchange and trade on the secondary markets. Its shares are listed on a 1:1 ratio, meaning one CDI is equivalent to one Zebit share.
However, trading in these CDIs has been thin over the last few years, leading the company to conduct a re-evaluation of its capital structure.
Zebit had 1,375 CDI holders at the beginning of February, and of this amount, approximately 46.47% or 639 CDI holders had small positions of A$500 or less.
"The Company's low liquidity levels have resulted in limited trading opportunities for securityholders seeking to exit their positions and for new ones to acquire CDIs", Zebit said. "It is not anticipated that trading levels/liquidity will improve in the near future".
Not only that, but Zebit reckons it could put the costs assigned to maintaining its listing to better use in other alternatives. It estimates the delisting will save around US$140,000 per month in the next year, annualised to US$1.68 million per year.
"Legal, accounting, insurance, and other expenses incurred in satisfying ASX filing, reporting, and compliance requirements have proven burdensome for the Company in recent times, given its limited cash reserves", the company said in regards to its listing costs.
But Zebit also reckons it will have a difficult time in raising new capital from Australian investors in FY22 – and the company needs to raise capital, non-negotiable. It is doubtful that investors are willing to commit more of their hard earned capital via public equity offerings.
Finally, the board reckons that investors are unfairly punishing the stock, leading it to "question whether the market is fairly valuing the company".
"Since the company's IPO debut, the board has observed ongoing fluctuations in the quoted price of the company's CDIs and noted that the value attributed to a CDI has been largely independent of news flows, even when positive news has been released.
"The Board believes that being an unlisted Company would allow a more objective and independent appraisal of valuation to take place, without concern for any illiquid public market".
What does this mean for Zebit shareholders?
Good question. One might assume the company would commit to repurchasing its own stock, or at least arranging a third party buyer off-market.
But it appears the ASX granting Zebit its voluntary surrender is contingent on a few outcomes, notwithstanding a full process for shareholders to unload their holdings.
Zebit must show compliance to a "statement to the effect that if security holders wish to sell their securities on ASX, they will need to do so before the company is removed from the Official List".
However, "if they do not, details of the processes that will exist after the company is removed from the Official List to allow a security holder to dispose of their holding and how they can access those processes".
The full consequences of being removed from the Official List will be detailed in full during the planned notice meeting later this month.
Very importantly for Zebit shareholders, is that its CDIs will no longer be publicly quoted or traded on the ASX, and "it will be more difficult for a securityholder to dispose of their securities", the company says.
Investors will only be able to "sell the converted, underlying shares in off-market private transactions requiring securityholders to identify and agree the terms of sale".
After the suspension date that's planned on 19 April, investors "wishing to trade their securities will be entitled to transfer their securities off-market to a willing third party purchaser in accordance with the Company's By-laws".
Naturally, investors are running for the hills in fear of being the one left catching the falling knife, or at least being left with un-tradable, illiquid stock.
The board also acknowledged it will surely face backlash from stakeholders given the timing of its decision, but offered some assurance and said:
In addition to a right to participate in, and vote at, the meeting, shareholders have the right to assert various claims against Zebit and its directors under US federal law as well as under Delaware state law being, including for breach of fiduciary duties, fraud, self-dealing and a variety of acts.
The Delisting is subject to securityholder approval (as a special resolution at the general meeting proposed to be held on 16 March 2022. Further details relating to the Delisting, including potential advantages and disadvantages for securityholders, will be included in the notice of meeting which will be dispatched to securityholders shortly. All securityholders will be entitled to vote on the resolution.
The anticipated delisting date is 22 April 2022, following a notice of meeting on 21 February and the special meeting on 16 March. If all goes ahead, everything should be wrapped up by 27 April.
