Ram to Banks: defend share value
Stabroek News
May 7, 2004
Banks DIH shares have sunk another five per cent, from $5.8 to an all-time low of $5.5 per share. And shareholder/ chartered accountant Chris-topher Ram feels the company erred in its 176 million bonus issue earlier this year, increasing the supply of a low-demand product.
Under normal market conditions, persons would seek to sell over-valued stock such as Banks shares, which reflect a high price/earning ratio but a low dividend yield. Ram sees the pressures on Banks shares as a savvy investor cashing in on over-valued shares in an undeveloped market.
"I see the supply situation as being a case of persons, who are investment savvy, taking advantage of a market which has been slow to respond to the bonus issue. The bonus issue should have automatically seen a reduction in the share value. I see this savvy investor taking advantage of this window of opportunity to cash in on the shares while the market is somewhat inflated. I see persons who quite don't understand the sophistication of share prices, buying the shares. It is a case of a smart fellow and a stupid buyer," Ram asserts.
Ram had earlier stated that the bonus issue alone would devalue Banks shares by 20% to reach $4.80 a share and the poor results in 2003 would push the price under $4.50 per share.
Chairman of Banks DIH Clifford Reis had blamed the slump of the company stock on manipulation. However, there has been an oversupply of Banks DIH shares on the market, unmatched by demand. Banks shares were first traded on the Stock Exchange in June last year at $7.50 a share but fell steadily until the twelfth session when they rebounded, but began sliding thereafter.
Ram argues that if Banks DIH and its directors believe the company's shares are under-valued, they ought to step in the market to protect the value of the shares. He notes that it is the responsibility of the company and its directors to protect shareholder value.
Ram insists that the bonus issue should not have been made, but rather the company should have stepped into the market and bought up its shares to protect shareholder value. (The only plausible explanation for the oversupply before the bonus issue in an unsophisticated market could have been the economic conditions.)
The chartered accountant says it would look stupid now for the company to step into the market, but if it is serious about protecting shareholder value, then it should intervene and buy up the company shares. Ram notes that apart from Paul Carto, no other director of the company has increased his shareholding of the company's shares between April and September of last year.
Ram notes that the bonus issue has added to the availability of shares on the market which compounds the problem of reducing shareholder value. Ram feels a normal market would have seen a proportional write down of the value of the shares but person(s) are cashing in on the higher prices.
"The worst thing to do in a market in which too many shares are available is to issue new shares. What might have been a better option might have been to buy back shares if you felt they were undervalued," Ram insists.