07 Jun What Is A Share Consolidation
Did your shares shrink?
It might have been consolidated.
What Is A Share Consolidation
Share consolidation is a corporate action conducted by the company with the intention to reduce its number of shares trading on the stock exchange.
It does so by reducing the number of shares held by its existing shareholders.
Let’s use HupSteel as an example.
Assuming you are holding 100,000 shares. A 5:1 share consolidation means, for every 5 shares you own it will be reduced to 1. In this example, you can expect to see your shareholding become 20,000 after the consolidation(100,000 / 5).
How Does It Affect You As A Shareholder?
Is that a bad thing? You paid to buy 100,00 shares and now the company reduces your shareholdings – are they playing game on you? No, it’s not.
It has no negative impact on your end. Share consolidation reduces ALL the shares held by the shareholders and when every shareholders get affected no one loses out.
No doubt the number of your shares is lesser, but the percentage ownership and value of your investment remain the same.
Let’s go back to the 5:1 consolidation example mentioned above. When the shares consolidate, your number of shares become lesser (divide by 5) but your price per share becomes higher (multiply by 5). This has a net neutral effect on your investment.
Anything you need to do?
Actually, nothing much. The company will send you a letter to pass a resolution on a AGM/EGM. After the consolidation takes place, a new stock quote is given, the shares price become higher and your shareholding becomes lesser.
Do note that your broker would not correctly reflect the number of shares you have after the consolidation. Rather, it will show on your CDP statement, check out Alvin’s article to find out why.
Minimum Trading Price
You might be thinking if there is no impact on your end, what is the purpose of a share consolidation? Many stocks listed on the SGX has to comply with the Minimum Trading Price (MTP) of $0.20. The MTP aims to lower the transaction cost and subject the stocks to less speculation and market manipulation.
We know that one of the effect of share consolidation is the increase in share price. Hence, share consolidation is one of the cheapest and easiest ways for company to meet the MTP requirement.
Many stocks listed on the SGX have since underwent share consolidation and have changed their stock symbol as well.