What are the implications of FreeSeas Inc’s (NASDAQ:FREE) NASDAQ delisting, and subsequent OTC registration?
At market open on Friday, FreeSeas Inc (NASDAQ:FREE), a Greek shipping company, traded for a little over $1.67 a share. By market close, the company traded at $1.15 a share – a more than 35% decline across the session. Here is a look at why markets sold off on the company, and what we can expect going forward.
First up, for those not familiar with FreeSeas, the company is a dry shipping company based out of Greece. It transports a range of commodities, including iron, coal, sugar and a host of foodstuffs. Up until this week, it traded on the NASDAQ – something that we will look at in a little more detail shortly. At time of writing, its market capitalization is a little over $250 million.
So, why the decline?
At the end of last year, management reported that the company was under review, and that’s it’s exchange listing (NASDAQ) might be subject to revision going forward. Fast forward to April, and a reverse split preceded an announcement – that the listing was indeed in danger, and that FreeSeas would be delisted, and in turn, list over-the-counter.
It is this news that drove the sell off, and we will likely see further weakness going forward as a result.
Why is a delisting of this type a bad thing?
It’s all about exposure. When a company lists on the NASDAQ or the New York Stock Exchange, it catches the attention of institutional investors, and in turn, smart money. Further, the vast majority of hedge funds operate strategies that don’t allow them to invest in any companies not listed on either of the two aforementioned exchanges.
For a company the size of FreeSeas, access to capital is key.
Being listed on the over-the-counter bulletin board, rather than the NASDAQ, will restrict capital access going forward. Of course, this doesn’t necessarily mean the company is in trouble. There are other ways to raise capital. It does mean, however, that this capital might be more expensive (i.e. subject to a high interest rate) or that share issues won’t attract buyer attention as easily as they otherwise might have.
What are we looking at going forward?
As the company registers its over-the-counter listing, we will get an update on its corporate finances. Cash and cash-equivalents will be the key figure to watch, as this will offer some insight into the impact of not being able to raise institutional driven capital on the company’s ongoing operations.
DISCLAIMER: There is a substantial risk of loss with any speculative asset, especially small cap stocks. The opinions expressed are those of the author, and do not constitute recommendations to buy or sell a stock. Do your own research before committing capital.
