The Singapore Exchange has eased one of the key features of its controversial minimum trading price (MTP) rule, following strong criticism of the new regulation and recent global market developments.
It will now give firms that consolidate their shares before March 1 next year an extra six months to ensure their stock price complies with the new rule.
Initially the SGX stated that the six-month average share price of mainboard-listed companies must be 20 cents or more once the grace period ends on March 1. If this rule is not met, the firm would go on a watch list for three years.
But the SGX relaxed that somewhat yesterday, saying they will assess the six-month volume- weighted average price of the shares of the companies on Sept 1 next year, giving the firms extra time to comply.
It said the extension follows feedback from investors and companies that share prices post-share consolidation could be affected by challenging market conditions.
EASING PAIN OF FIRMS
The SGX can help alleviate the pain by intervening more to get companies to consolidate at the correct ratios.
MR MANO SABNANI , veteran investor and activist shareholder
News of the extension came just days after China Taisan Technology Group Holdings said its application for a second share consolidation was rejected because the SGX feared there would be so few shares left after consolidation that it raised the risk of the stock being "cornered" or manipulated.
A check at the end of October showed that many firms are already well on the way to meeting the MTP, with 94 of the 167 companies likely to be affected either acting on or announcing plans to comply. Of the 94 firms, 86 have decided on a share consolidation, of which 65 have completed the action.
A consolidation involves a firm buying back stock on the open market. This reduces the number of shares and should lead to a rise in the stock price.
Veteran investor and activist shareholder Mano Sabnani called the extension a "reprieve".
"But many of the companies that do share consolidation suffer a drop in total market value, and the actual post-consolidation share price doesn't reflect the theoretical share price, which hurts shareholder wealth and that has dampened sentiment quite a lot," he told The Straits Times yesterday.
"The extension is not as broad. They should have pushed back the deadline for all affected companies. It actually applies only to those who have consolidated their shares."
Mr Sabnani added: "The SGX can help alleviate the pain by intervening more to get companies to consolidate at the correct ratios so as to have a post-consolidation share price in the region of, say, 30 cents, rather than $1. The aim is to retain liquidity and tradability of the shares.
"When these companies over- consolidate their shares, they end up with too few shares in free float, and some shareholders also become odd-lot shareholders, which makes it harder for them to trade actively."
Securities Investors Association (Singapore) chief David Gerald also welcomed the move, but noted there are still a number of companies that have not taken any action to comply with the rule, which is "worrying for investors".