April 1, 2015
Proposal for a minimum trading price
Following the October 2013 penny-stock scandal surrounding Blumont Group Limited, Asiasons Capital Limited and LionGold Corporation Limited, the Monetary Authority of Singapore (MAS) and the Singapore Exchange Limited (SGX) conducted a joint review of the securities market structure and practices.
In a consultation paper issued in February 2014, the MAS-SGX review identified the area of “promoting orderly trading and responsible investing” for possible enhancements. One proposal was to implement a minimum trading price (MTP) of issuers listed on the SGX Mainboard to address excessive speculation and potential market manipulation.
In a further consultation paper issued in September 2014, SGX sought the views of the public on the implementation of a MTP. On 10 February 2015, SGX announced that the MTP of S$0.20 per share would be introduced from 2 March 2015.
Rationale for a minimum trading price
According to the SGX, the MTP will help to improve the overall quality of Singapore’s stock market by (i) reducing the investment risk that is normally associated with low-priced securities, and (ii) improving the liquidity of Singapore’s stock market. The S$0.20 threshold was seen as appropriate to achieve the aim of reducing excessive speculation and potential manipulation.
Implementation of the SGX minimum trading price
On 9 February 2015, SGX issued “A Guide to the Minimum Trading Price Requirement for Mainboard Issuers” (MTP Guide) to provide Mainboard issuers and investors with more information on the MTP rule.
In essence, the MTP rule requires Mainboard issuers to maintain the MTP of S$0.20, based on the issuer’s volume weighted average price (VWAP) of their shares for the six months period prior to the date of review. VWAP is computed based on total value of securities traded for the six months under review divided by the total volume traded for the six months.
As described in the MTP Guide, the MTP rule will be implemented in stages.
Stage 1: March 2015 – Start of 12-month transition period. During this 12-month transition period, Mainboard issuers are given the opportunity to undertake such measures as are necessary to comply with the MTP rule. Please see the section titled “Options available for Mainboard issuers to comply with the MTP rule” below for further details on potential options that Mainboard issuers may undertake to comply with the MTP rule.
Stage 2: March 2016 – Commencement of reviews by SGX. From 1 March 2016, SGX will begin conducting quarterly reviews on Mainboard issuers to determine their compliance with the MTP rule. If a Mainboard issuer fails to fulfil the MTP rule, such issuer will be placed on the SGX watchlist and will be able to exit the watchlist if it can fulfil the MTP rule.
Stage 3: March 2019 – Cure periods start to expire. Where a Mainboard issuer has been placed on the watchlist subsequent to March 2016 due to its inability to fulfil the MTP rule, and such issuer is still unable to comply with the MTP rule after 36 months, the issuer will be required to delist from the Mainboard.
Options available for Mainboard issuers to comply with the MTP rule
The MTP Guide sets out the following actions that a Mainboard issuer can undertake to comply with the MTP rule:-
acquisition of new business;
a reverse takeover;
a transfer to Catalist; or
a combination of any of the above.
Of the above options, a share consolidation would be the most practical and feasible option as it does not affect the business or profile of the company.
The next section sets out the key processes and timeline for a share consolidation.
As a first step, the board of directors of an issuer should carefully consider the ratio for share consolidation. For example, where an issuer’s share price is S$0.05,
a share consolidation ratio of 5 shares into 1 share would theoretically increase the share price to S$0.25. In the same example, assuming the issuer has 10 million shares in issue before consolidation, the 5 to 1 ratio would reduce the number of shares to 2 million. Some considerations include: (i) having due regard to volatility in the issuer’s share price by providing for a sufficient buffer to comply with the MTP, and (ii) avoiding creating odd lots as far as possible. Where necessary, a financial adviser can be appointed by the issuer to advise on the optimum share consolidation ratio.
Once the share consolidation ratio is determined, an issuer can begin the share consolidation process by appointing legal counsel to commence preparation of the relevant documents. As a share consolidation requires shareholders’ approval at general meeting, a circular to shareholders would have to be prepared and sent to shareholders for consideration. Prior to despatch to shareholders, the circular would be reviewed and cleared by SGX.
The circular would set out key information on the share consolidation, including information on the effect of the share consolidation on any outstanding convertible securities of the issuer, effect on the 6-month VWAP of the issuer, financial effects on share capital, earnings per share, gearing, net tangible asset per share etc., how odd lots and fractional entitlements would be dealt with.
After obtaining clearance, the circular is sent to print for despatch to shareholders. If approved by the shareholders’ meeting, the issuer can implement the share consolidation with the assistance of its share registrar and other professional advisers.
Assuming there are no complications in the process, a typical share consolidation exercise can be completed within two months.
Rodyk has assisted issuers to undertake share consolidations and other corporate actions and with the implementation of the MTP, we have seen increased enquiry from Mainboard issuers who are considering ways to comply with the new rule during the implementation period.