The Aussie Broadband Ltd (ASX: ABB) share price is down over 3% after being told to sell Superloop Ltd (ASX: SLC) shares.
Both of these companies are telecommunication businesses. Aussie Broadband recently bought 19.9% of Superloop, but that now seems to be causing an issue.
Superloop tells Aussie Broadband to sell shares
Superloop has told Aussie Broadband to reduce its voting power/ownership of Superloop to less than 12% of the company.
The 19.9% stake was acquired without the prior approval of the Info-communications Media Development Authority (IMDA) in Singapore, as required by Superloop’s constitution.
Aussie Broadband has confirmed it is in breach of the constitution and said the failure to comply with the requirement was “inadvertent”. As soon as it became aware of the requirement, it notified IMDA.
There is reportedly Singaporean legislation which contains a framework for the IMDA to make its assessment based on a transaction that didn’t receive approval.
What next?
Aussie Broadband pointed out the constitution can enable certain actions by the Superloop board of directors where an acquisition has been made without prior IMDA approval. Those acquisitions include a suspension of voting rights for those shares, a transfer or disposal of the shares, and a restriction of income attached to those shares.
Before receiving the notice, Aussie Broadband had already provided Superloop with an enforceable undertaking not to exercise any voting rights attached to the excess shares until IMDA has approved or made a determination about the excess Superloop shares that Aussie Broadband owns.
Superloop said it takes its legal obligations “seriously” and that any risk of loss of its statutory licence in Singapore is a “matter of concern”. That’s why Superloop has told Aussie Broadband to sell shares.
It was also suggested that Aussie Broadband’s failure to obtain IMDA approval ahead of the purchase means it can’t buy further voting power without the approval of the IMDA, which is understood to only be granted if the IMDA is satisfied that Aussie Broadband “was not aware” of the contravention.
Final thoughts on Aussie Broadband shares
This seems to be a bit of a mess, and the recent loss of the Origin Energy Ltd (ASX: ORG) contract means it has been a painful March for Aussie Broadband shareholders (and a gain for Superloop).
The beaten-up ASX share may be an opportunity at this lower price, if its subscriber count can continue growing. The Aussie Broadband share price is now a lot cheaper than it was. It needs to continue offering great customer service to differentiate itself from the competition.
It’s not the kind of business I want to buy for my own portfolio though, I prefer different ASX growth shares which have greater potential operational leverage.
