Issuers listed on the Mainboard of the Singapore Exchange (SGX) will have to trade with a minimum trading price of S$0.20 (MTP) from 1 March 2016 onwards.

The MTP requirement seeks to address risks associated with low-priced securities and to improve the overall quality of securities listed on the Mainboard. It came into effect on 2 March 2015, just shortly after the SGX reduced the standard board lot sizes for listed shares from 1,000 to 100.

MECHANICS OF THE MTP REQUIREMENT

The MTP is a continuing listing requirement applicable to all Mainboard issuers, including Real Estate Investment Trusts (REITs) and Business Trusts.

Issuers will have a one-time transition period of 12 months from 2 March 2015 to comply with the MTP requirement, which is pegged to an issuer’s volume weighted average share price (VWAP) over a 6- month period prior to the date of each review. The 6-month VWAP of an issuer’s shares is calculated by dividing the total value of an issuer’s trades during the relevant 6-month period by the total volume of the issuer’s shares trades during the relevant 6-month period.

Any issuer that fails to meet the MTP requirement at the first review date on 1 March 2016 or any of the subsequent quarterly reviews will be placed on the watch-list, where it will remain for at least 6 months. An exit from the watch-list will only be secured if the issuer satisfies the MTP criterion on one of the quarterly review dates. If the issuer is unable to meet the MTP after a 36-month cure period up to March 2019, it will be delisted.

The 36-month cure period applies where an issuer fails to meet the MTP requirement at any of the quarterly reviews before March 2019. For example, where an issuer is placed on the watch-list on 1 March 2017, it would have a 36-month cure period (or until March 2020) to exit the watch-list.

CHANGES TO THE WATCH-LIST CRITERIA

Before the introduction of the MTP requirement, an issuer would be placed on the watch-list if it recorded (i) pre-tax losses for the 3 most recent completed consecutive financial years; and (ii) an average daily market capitalisation of less than S$40 million over the last 6 months. A failure to comply with the MTP requirement will be a new addition to the watch-list criteria with effect from 1 March 2016 onwards.

WHAT CORPORATE ACTIONS CAN BE UNDERTAKEN?

Mainboard issuers currently trading below or are in danger of trading below S$0.20 should use this 12-month transition period to undertake corporate actions to avoid being placed on the watch-list. Corporate actions could include share consolidations, acquisition of new businesses, reverse takeovers, transfers to Catalist, or a combination of any of the above.

Share Consolidations

A share consolidation will enable an issuer to reduce the number of its shares while maintaining its market capitalisation, thereby increasing its share prices. As long as the issuer’s articles of association permit the consolidation of its shares and the issuer obtains approval of the SGX and its shareholders, a share consolidation is a relatively straightforward exercise.

Pursuant to a share consolidation, the number of shares held by an issuer’s shareholders will be updated in its share register and the depository register. Thereafter, shareholders will be able to trade in the consolidated shares. With the reduced board lot sizes, a 10 to 1 share consolidation would still enable shareholders to trade in the standard lot size.

To facilitate share consolidations of affected issuers, the SGX is waiving corporate action fees for share consolidations for 2 years effective 2 March 2015. This makes share consolidations the most cost effective solution to comply with the MTP requirement.

Issuers seeking to undergo share consolidations should be aware of the following considerations:

(a) Dealing with odd trading lots

This 2-month option is only available in connection with share consolidations undertaken to comply with the MTP requirement.Shareholders may end up holding odd lots of an issuer’s shares pursuant to a share consolidation. To alleviate this problem, an issuer may seek SGX approval for the setting up of a temporary counter to trade board lot size of one ordinary share for a period  of 2 months. The temporary counter would start trading on the same date as the new consolidated shares and would allow shareholders to exit or consolidate their investments up to the standard board lot size.

(b) Dealing with fractional share entitlements

If fractional shares were to arise from the share consolidation, issuers would need to disclose the arrangements put in place for such fractional shares in the relevant circular when seeking shareholders’ approval for the share consolidation. Such arrangements could involve the aggregating, rounding up or rounding down, or cancelling of such fractional shares.

Transfer to Catalist

An issuer may consider a transfer of listing from the Mainboard to Catalist, where there is no MTP requirement. A sponsor will need to be engaged and the issuer will need to be able to comply with Catalist listing requirements.

Restructure

Other corporate actions, which issuers can consider, include restructuring, acquisitions of businesses, reverse takeovers.

CONCLUSION

As the countdown to 1 March 2016 has begun, several issuers have already undertaken or have applied to undertake share consolidations or transfers to Catalist. Going forward, all issuers should be mindful of the MTP requirement and make use of the 12-month grace period if necessary. An affected issuer needs to consider whether a share consolidation is a feasible solution to enable it to comply with the MTP requirement. Issuers with share prices that fall far below the MTP may have to undertake larger share consolidations or consider other more suitable corporate actions.