No news is bad news
Anyone following the Maltese financial market will be aware that two companies – Gap Developments plc and Loqus Holdings plc – have to date still not published their audited financial statements for the financial year ended 2011.
Given that their publication is way overdue in terms of the Malta Stock Exchange listing rules, the Malta Financial Services Authority, as the Listing Authority, has suspended the trading of these companies’ bonds and shares. This is a good example to remind companies listed on the Malta Stock Exchange about the importance of providing timely and good quality information to investors.
Most people believe no news is good news. But, in capital markets, no news is bad news. In the absence of information, investors will tend to fill the void by being prone to believing any rumours. Furthermore, based on past experience when companies failed to communicate, investors tended to err on the side of caution and assumed there was something wrong and acted accordingly. As a result, the logical advice to any company listed in a financial market is to provide timely and good quality information or face the consequences.
Most locally listed companies have clearly understood this fundamental principle and usually communicate to their investors within hours of annual general meetings or other board meetings. Even when events are extraordinary in nature, companies still try to follow this principle. When Lehman Brothers collapsed in September 2008, Bank of Valletta issued a statement the following day providing information about the impact of that event on its results.
More recently, in February 2011 just a few days after the start of the uprising in Libya, Mediterranean Investment Holdings plc published a similar statement. Given the nature of the Libyan events, the content of that statement was rather vague and did not contain substantive information. It does not matter that the statement did not contain many figures, but it was important to show that the management was in charge, aware, and monitoring the situation. More importantly, it showed that MIH respected its investors and that it would keep them informed as developments took place.
It takes courage to follow such a path, especially when companies are going to deliver negative news as their stock or bond might fall on announcement. However, if the situation is rectified, stocks and bonds will recover as happened in the Bank of Valletta and Mediterranean Investment Holdings cases.
It is much better to announce bad news quickly rather than drag on and hope that the situation will improve. Usually, it does not and even becomes worse. Then the punishment in terms of price decline will be much harsher as documented in other stock exchanges.
There is also a second fundamental principle in investor communication: Do not break promises. Whenever companies commit to something, they must be sure to deliver.
To use Gap Developments plc and Loqus Holdings plc as examples, both earlier on this year promised to publish their financial statements for the year ended 2011 and have failed to deliver.
Gap Developments plc first promised on May 7 to publish financial statements by June 8 and made a further promise on June 14 to publish by July 27. The company also organised its annual general meeting on August 2 but has not communicated on it. Loqus Holdings plc promised on February 2 to publish results by the end of the first quarter of 2012.
To this date, investors are still awaiting both financial statements.
Such practices should not be followed as investors will stop believing company communications even if the information reveals itself to be true afterwards. It is easy to damage company reputation and it takes a considerable period of time to regain it.
Gap Developments plc bonds are going to mature in April 2013 – that’s just eight months away. Investors have short memories – but not that short.
Robert Suban is a full-time academic within the Department of Banking and Finance at the University of Malta.