IPC – Capital reduction

Just 2 days ago, IPC announced a capital reduction exercise. This exercise is to return $1.60 for every share owned following the recent consolidation of 10 IPC shares into one share.  With a total shares issued of 85,291,885 shares and no shares in the treasury, it would mean that IPC will be paying out a total sum of $136.48m. With a ‘windfall’ of $1.60 per share for the shareholders against the yesterday’s close price of $1.99, it is likely that this proposed exercise be accepted in the EGM.

However, up until recently, IPC’s development has not been plain sailing. It started off as a PC maker in the 90s, and made its debut on the SGX in 1993. (If I have not mistaken, the IPO share price was $0.76 per share). Following the dot-com bubble bust, the share price of IPC plummeted to around 2.5 cents in early March 2003. (IPC might have raised some rights at that time to shore up its capital base) It was even thought that IPC might not survive the onslaught following the dot-com bubble burst. Even the share consolidation of 4 shares into one in February 2005 did not help either. It continue to sink from about 13.5 cents after consolidation to about 7.1 cents in late April that year. Honestly, after all these years, many investors would have lost a lot of money and would have given up hope on this company.

Meanwhile, IPC transformed itself from a technology company into a real estate developer. With some help from Lady Luck, IPC was able to transform itself buying into the Japanese real estate at historical low prices after years of recession. However, real estate development normally takes years to bear fruit, and IPC would have slide into a forgotten stock if not for Oei Hong Leong effect that had caused the share price to blip each time he made a general offer. Even up until September this year before the share consolidation of 10 shares into one, he still made a general offer to pay 17 cents per share.

Fundamentally, the company was getting better although it appeared that not many people discovered it. Perhaps it was due to the bruises that it had caused during the initial years, causing many people to give up this stock. The share price  has been holding above 10 cents (or $1 based on the recent consolidation of 10:1) after the global financial crisis in 2008/2009. Frankly the relatively range bound share price and Oei Hong Leong effect, which caused occasional blips in the share price had enabled me to sell above 19cents and then buying back at 13 cents helping to bring down my average price. (my first board lot was purchased during IPO at a whopping price of 76 cents a piece!).

Based on annual report of 2014, Mr Oei Hong Leong has a total shareholding of 254,332,000 or 25.4332 million shares after consolidation. This made him the biggest shareholder with a shareholding of 29.82% as of March 2015. With the capital reduction exercise, he would be able to get almost $407m from this exercise. Certainly, being a substantial holder, it is likely that he would agree to this exercise, barring unforeseen circumstance. Also, thanks to him, the exercise would also help me cash out several times over my average purchase price without losing control of my shareholding. Certainly, I would be more than just happy to say yes to this proposal for it would mean that I have invested in the company with no money down. Not only would I not lost control of my shareholding, I would have recovered several times of what I have paid for the stock during these years, not including dividends that have been received over the past 10 years. (That’s why I am in stocks!)

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Finally, the justice is done.

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

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