We invest in stocks so that we can earn a return to grow our wealth. In our pursuit for outstanding investments, we are sometimes lured into putting our money in companies based on rumours, too-good-to-be true results or because their share prices look like absolute bargains.
What happens next is usually heartbreak as these investments that promised outstanding returns often end in financial losses rather than profits for investors.
In this article, we list five Singapore-listed stocks that fell to zero, or nearly there. We look at some of the reasons its values plunged to such levels and what happened to them subsequently, as well as how you could have avoided or limited your exposure to such investments in certain cases.
#1 Blumont Group Ltd
What happened: At the height of investors’ interest in natural resources company, Blumont, its shares were trading at over $2.45 apiece in the 3rd quarter of 2013 after surging close to 800% in the space of nine months. Today, its shares are worth approximately $0.001, basically next to nothing (as this is the lowest value shares can trade at).
This spectacular rise and subsequent dip in its share price, along with two other related companies, LionGold Corporation and Asiasons Capital Limited (now Attilan Group Limited), over a three-day period sparked one the worst market runs in the history of the Singapore Exchange, wiping out close to $8 billion off the local exchange.
How it ended: In 2014, the regulators took Malaysian businessman and mastermind of the operation, Soh Chee Wen, his girlfriend, Quah Su Ling, and an associate, Goh Hin Calm, to task in relation to fraud in one of the most serious and complex cases of market manipulation in Singapore.
Trawling over two million emails spanning 180 trading accounts set up by the trio to carry out manipulative trades to create an illusion of demand and liquidity of the shares in the market, this investigation is still ongoing.
Mr Goh, alone, faces 188 charges for his role in what is now dubbed the Penny Stock Saga, with Quah Su Ling and Goh Hin Calm facing multiple charges themselves. He has been in remand since November 2016.
Blumont’s shares: For Blumont, it is still trading albeit at a tiny fraction of its prices in its heydays. It has recently become the subject of a takeover offer from its major shareholder Ultimate Horizon Pte. Ltd. However, this offer is not going to move the needle for investors as it is actually at an 82% discount to its trading price.
#2 Linc Energy Ltd
What happened: Linc Energy’s Singapore listing was seen as sort of a coup for SGX as the innovative energy firm, spearheading underground coal gasification technology and with high quality oil and gas assets in North America and Australia, leaving the Australian bourse for Singapore, citing its global appeal and access.
Shortly after its arrival in the Singapore market, the Australian authorities began cracking down on a possible site contamination by the company at its local testing facility which left four employees sick, with suspected gas poisoning.
This resulted in the company being taken to court to bear the cost of cleaning up the lands around its testing facility in Australia.
At the same time, it was hit by the weak oil and gas market which crippled its operations and ability extract its oil reserves. This resulted in growing debts for the company adding up to over A$320 million.
How it ended: The company is in the process of being liquidated after creditors unanimously voted to put it into administration. This was after the company was unable to raise funds amid the tough oil and gas environment, especially with criminal proceedings looming in the background.
Linc Energy founder, Peter Bond, is now in court, along with four other senior executives fighting charges for failing to comply with the country’s Environmental Protection Act.
Linc Energy’s shares: Linc Energy’s shares were suspended in March 2016. Its liquidators have sold some of its assets, and has filed for a one-year extension to submit a proposal to resume trading with SGX.
This means shareholders will continue to be in limbo until liquidators can realise the full assets of Linc Energy and ultimately disburse the amount.
#3 Swiber Holdings Limited
What happened: During its prime, Swiber was trading at over $6.16 in 2007. The company was performing well and winning new and bigger contracts in the oil and gas industry. It was even listed as “Best under a Billion” in the late 2000s.
By 2016, after weathering a downcycle in the oil and gas industry for over a year, it was left facing hundreds of millions of dollars in debt and weak business prospects. This culminated in the company filing for judicial management.
How it ended: Swiber’s business gradually deteriorated after the slump in the oil and gas markets. In 2015, it posted losses of over US$27 million. By 2016, Swiber became one of the biggest casualties of the oil and gas slump in the Singapore market.
It had also defaulted on bond payments due at the end of that year, which affected many investors in Singapore who had been sold the high-yield bonds.
Swiber’s shares: By the time its shares were suspended from trading in July 2016, it was trading at just $0.109. Its shares are still suspended today, and the management is still working to liquidate its assets.
#4 Saizen Real Estate Investment Trust (REIT)
What happened: Saizen REIT sold off its entire portfolio of Japanese residential properties for $542.8 million to Japan-based Triangle TMK in March 2016. This was at a 3.4% premium to its appraised asset value, and 36.9% above the closing price immediately prior to the announcement.
How it ended: As expected, its shares dipped to under $0.03 per share after selling its assets and distributing most of the proceeds to unitholders in March 2016. The deal effectively rendered Saizen REIT a cash trust.
In the next one year, its share price turned volatile as it seeked new business. In August 2016, it entered into an official agreement with Malaysia’s Sime Darby to explore the possibility of an reverse takeover (RTO) deal to inject its Australian properties into the company.
Saizen REIT’s shares: Saizen REITs share price began a period of see-saw on the back of several announcements regarding the possible RTO deal with Sime Darby.
On 1 October 2016, its share price plunged to $0.03 after announcing that it could not reach an agreement with Sime Darby on a proposed RTO deal. Just a few days later, on 10 October 2016, it announced it that the RTO agreement with Sime Darby was proceeding with an injection of 20 industrial properties in Australia into the REIT. This caused its share price to rocket to the $0.06 level once again.
On 3 January, it announced that the proposed RTO would be delayed due to “the transaction process taking longer than originally envisaged.” While this did not spook investors, it finally announced on 10 March that the RTO was not feasible – this pushed its share price back down to under the $0.03 level.
Trading in the REIT’s shares was suspended from 16 may 2017 at a price of $0.033, and it has since announced that the company will be liquidated and unitholders will receive $0.03378.
#5 Eratat Lifestyle Limited
What happened: Eratat was getting lots of investor interest with growth story – increasing sales and profit figures as well as healthy cash position. The company was also moving into premium segments of its market to boost profitability.
Abruptly, on 29 January 2014, trading of Eratat shares was suspended. It emerged that Eratat had defaulted on its bond interest payments, and as a result, the bondholder was going to redeem the bond.
It further emerged that the company’s Audit Committee was unable to get satisfactory answers from the CEO as to why this happened when it had sufficient funds to pay it off. The CEO was subsequently suspended from his duties.
The Audit Committee tried to verify Eratat’s bank balances in China but could not verify this after its bank stated there were “discrepancies” in the statements. After further liaison, the Audit Committee found that instead of the RMB577 million indicated by the CEO in an online transcript, the company had less than RMB74 million. In addition, it also owed previously unreported bank borrowings and trade bills of RMB64 million.
How it ended: On 30 May 2014, the company filed a report with The China Banking Regulatory Commission (CBRC) based Fujian and the Commercial Affairs Division (CAD) in Singapore.
On 18 August 2014, the company released an announcement stating that the CBRC had confirmed that the CEO of Eratat was found to have forged bank documents. Even worse, he had used the bank’s premises to hand forged bank statements to the Audit Committee.
Eratat’s shares: On 28 August, Eratat was placed under judicial management. On 12 Jan 2015, the company announced that it was in talks with a real estate company to transfer its listing status.
After close to 30 months of judicial management, there was no prospect for any corporate rescue of restructuring and the company announced that it would be delisted on 19 June 2017.
What You Can Do To Protect Yourself
Only in hindsight can we tell that investing in these companies was a really bad move. However, there are some red flags you can look to when making investments to try to avoid bad investments. In addition, you could also heed some basic investment advice when it comes to growing your wealth in the long-term.
First of all, when investing in relatively unknown penny stocks, you should only allocate a small proportion of your portfolio to it, and definitely not use margin financing to inflate your exposure. You should also be wary of rumours as they can trap you in investments you would not otherwise have made.
This is also why diversification is so important. As you limit a small proportion of your investment to more risky investments, you should also allocate a portion of your portfolio for safer investments. At the very least, even if your entire portfolio was filled with risky investments, a few of them failing while others delivering may help you ride out the unpredictability.
Many of the investments could also have been avoided if you read the companies financials and looked deeper into its balance sheets as there were some red flags in many cases. If you’re not savvy enough to do this, you should perhaps limit your exposure to a very small amount or choose to invest in safer investments such as the Straits Times Index (STI) exchange traded fund or other country indexes.
For those who want to take a punt on some of the “sexier” investments, you could try to set a loss-limit and target to sell it after a 10% or 20% dip in value. Doing this can be very beneficial as it forces you to question how much losses you’re willing to swallow in addition to ensuring you do not lose your entire investment.
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