SGX MTP extension a timely move

THE Singapore Exchange (SGX) has wisely decided to extend its Minimum Trading Price (MTP) review date by six months to Sept 1, 2016, for companies that consolidate their shares to comply with MTP before March 1, 2016.

This was announced yesterday and will cover "second rounders'', or companies that have already undergone one round of consolidation but whose shares are in danger of falling below the MTP threshold of S$0.20 once again.

This gels with suggestions made in a BT commentary last month (Minimum trading price rule may need tweaking, Nov 6) that dealt primarily with the possibility that second rounders would one day emerge. At the time, we were not aware of such examples - since then, two have surfaced.

The first is knitting fabric firm China Taisan, which undertook a 20 into one consolidation in June this year but since its shares have since slipped below S$0.20, last month proposed a second round of consolidation, this time of 10-1.

However, earlier this week, the company announced that its proposed second exercise has been blocked by SGX because, perhaps ironically, it would result in too few shares in issue - only 5.6 million post-second consolidation - thus raising the possibility of cornering.

We say "ironically" because one of the reasons for introducing MTP was that higher post-consolidated prices in theory should lessen the opportunity for manipulation. Instead, in China Taisan's case, its application for a second round to satisfy MTP was rejected because it would have risked potential manipulation.

A second example would be Global Yellow Pages (GYP) which in May this year completed a 10-1 consolidation that initially took its share price to around S$0.38 but could now fall foul of MTP if its shares continue to trade below S$0.20 as they have since Aug 21. They were last traded at S$0.18 on Tuesday and volume has all but vanished.

Brokers say there may be others in the same boat but the two are sufficient to illustrate the point that an extension was urgently needed.

The problem is that whilst MTP is intended to push companies with weak or non-existent fundamentals to lift their game and is therefore well-motivated, it has had to contend with a host of obstacles, mainly a weak external environment, a slowing domestic economy, the increasing possibility of rising interest rates and increasing negativity towards emerging Asia, all of which have led to a big loss of liquidity in this part of the world.

By way of illustration and to explain its rationale for granting the six-month concession, SGX in its Thursday announcement, noted that the FTSE ST All-Share index has lost 15.5 per cent between March and November, including a 4.9 per cent in November alone.

This in turn has prompted the departure of many retail investors which has compounded the problem since it adds to a vicious circle of low liquidity that is discouraging investment in stocks, which in turn leads to low participation and therefore low liquidity all over again.

So it is that stocks like China Taisan, having only just satisfied MTP in June, have had to try again barely five months later.

The concession announced on Thursday means that second round companies like China Taisan (and potential second rounder GYP) as well as first timers who have already consolidated their shares will have more time since they will only need to comply with the MTP requirement by Sept 1 next year.

Hopefully, this gives their management time to embark on initiatives such as mergers or reverse takeovers to boost their share prices. Six months may not seem like a long time to some, but at least it gives companies some breathing space.