The manager of ESR-REIT has announced a proposed unit consolidation of 10 existing units to one unit, held by unitholders of ESR-REIT.
The rationale for the proposed unit consolidation is to reduce the magnitude of fluctuation in ESR-REIT’s unit trading price and reduce excessive volatility in its market capitalization, and allow for unit price movements that are more consistent with general market movements in terms of percentage changes.
As an illustrative example, since Jan 1, 2022, ESR-REIT has traded in the range of 24.5 cents to 48.5 cents. Using a rounded unit trading price of 26 cents within the range mentioned above, the mandated Singapore Exchange (SGX) bid-ask spread of 0.5 cents for counters below $1/unit will result in a 1.9% change in unit trading price.
With the consolidation ratio, the new theoretical price of a unit would be $2.60. With a unit trading price above $1/unit, a 1 cent bid-ask spread will now apply, resulting in a much smaller impact of 0.4% change in unit trading price.
The REIT says that the proposed unit consolidation will also reduce interest from share speculators or punters, and short sellers on the units.
As the aforementioned group often speculate on a stock’s decline, they bet and profit from a drop in prices of a financial instrument by borrowing a security and selling it on the open market, planning to repurchase it later for less money.
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The group says that its trading range of 24.5 cents to 48.5 cents since Jan 1, 2022 has resulted in share speculators or punters and short sellers showing keen interest in trading ESR-REIT as a “penny stock” .
In addition, the proposed unit consolidation will also result in higher unit price denomination, therefore reducing brokerage trading costs as a percentage of each board lot of consolidated units.
The proposed unit consolidation will rationalise the capital of ESR-REIT by reducing the large number of units in issue from 8,049,164,215 existing units in issue as at Feb 10, to at least 804,916,422 consolidated units following the completion of the proposed unit consolidation.
Units in ESR-REIT closed 0.5 cents lower or 1.961% down at 25 cents on Feb 10.
