The Colombo Stock Exchange (CSE) experienced a highly bizarre incident this week when 130.2 million shares of Blue Diamond (BLUEx) were traded on Thursday whereas the company has only 102.2 million shares in issue.
Stockbrokers said this could possibly be the first time in the CSE that a higher number of shares of a stock were traded than the total number of shares in issue. One broker told the Business Times that it is extremely rare, if it has happened at all. “This is definitely not the norm and it is unheard of in normal trading.” An interesting point to note is that only 88 million shares of Blue Diamond are lodged in the CSE while the balance 14 million is in share certificates. The stock which opened at Rs.1.10 was trading as high as Rs.3.40 on Thursday with the share price reaching Rs.4.10 in early trading on Friday.
Analysts said this happened because the same parcels were traded several times. One broker said this is a good example of how short term, speculative and almost manipulative casino-like activity is taking over from the investment side. “In any market, you need a mix of investors from long-term investors to short-term investors and speculators,” he said. He added that some of the trading in the CSE is extremely speculative. “When shares are going up, people think it’s a one way bet but it isn’t.
The more it goes up, the more people buy.” He quoted famed British economist John Maynard Keynes who wrote in ‘The General Theory of Employment, Interest and Money’ that ‘speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.' The broker added that this is a case of people spreading stories about the takeover angle. “Whenever companies don’t have much going for it, the last line of defense seems to be takeover.”
The broker also said there are stories on Environmental Resources Investments (ERI) taking a look at the company. According to the Blue Diamond’s latest financial statements submitted to the CSE, the company reported a net loss of Rs.7.6 million for the quarter ending 31 March 2010. This is a 384% decline from the corresponding quarter in 2009.
The company’s financial statements further shows that the highest price that Blue Diamond non-voting shares traded at during the period ended 31 March 2010 was Rs.1 with the lowest price during the period recorded at Rs.0.70. The market price as at 31 March 2010 was Rs.0.80.
The top five shareholders in the company are Ceylinco Insurance Company PLC (12.29%), The Finance Company PLC (3.23%), Nation Lanka Finance PLC (2.64%), M. Jayaweera (2.26%) and the Finance Portfolio Management Co. Ltd (2.20%).
ERI, which is rumoured to be looking at Blue Diamond, took a controlling stake in Ceylon Leather Products (CLP) in 2009 and is credited for successfully turning around the company. ERI, along with its subsidiary CLP, also signed an agreement with the board of directors of Dankotuwa Porcelain to purchase a 66.6% in the tableware company. An announcement to the CSE last week stated that the ERI-CLP consortium has agreed to purchase the Dankotuwa stake at Rs.9 per share for a total of Rs.433.4 million. It was reported that the deal is subject to shareholder and regulatory approval.
The Business Times reported last week that the main investor in Dankotuwa now is a consortium of Japansese companies. Stockbrokers had said ERI-CLP would be purchasing the 66.6% stake at a highly discounted price because the stock was trading for much higher, hitting Rs.40 this week. (NG)