Genco Shipping & Trading Limited (NYSE: GNK) is on the verge of a transaction that will dramatically alter its share structure. The company is struggling to regain compliance for continued listing on NYSE after its stock price fell below the minimum bid price of $1. As such, GNK is trying to use reverse stock split transaction to at least shore up its stock price so that it is not delisted from NYSE.
How does the reverse stock split affect shareholders and what does it have to do with the future of Genco Shipping & Trading Limited (NYSE: GNK)? On the future of GNK, it means that the stock can continue trading on NYSE, which is a great for its profile and potential to attract future investment. As for the shareholders, the major and immediate impact of the reverse stock split is that it will significantly reduce the volume of the company’s shareholders in the hands of investors. Additionally, the reverse split will theoretically raise the price of each GNK share because several individual shares are being combined into one share.
The reverse split ratio
Shareholders of Genco Shipping & Trading Limited (NYSE: GNK) voted to approve the proposal to restructure the company’s common stock through a reverse split. But the shareholders said they would only accept such share restructuring if it was done in the ratio range of 1-for-2 to 1-for-251.
After a careful assessment, the board of GNK has decided to go with the 1-for-10 reverse split, which falls within the shareholder recommended range. In the selected stock restructuring ratio, 10 individual shares will be combined to make one share with the value of the combined shares. As such, the reverse split will only reduce the number of GNK shares floating but will not affect its market cap.
The improvement in the share price should help GNK escape delisting from NYSE because its share price is expected to rise above $1.
Sharp drop in outstanding shares count Genco Shipping & Trading Limited (NYSE:GNK)
After the reverse split, the outstanding shares of Genco Shipping & Trading Limited (NYSE:GNK) will shrink to 7.4 million shares from the current 73.5 million shares.
What happens to fractional shares?
In the event that shareholding of an investor in GNK is not evenly divisible by 10, the would-be fractional shares will be settled in cash.
Genco Shipping & Trading Limited (NYSE: GNK) generated revenue of $20.9 million in 1Q2016, a steep decline from revenue of $34.4 million in the like quarter a year ago. Lower spot market rates were blamed for the decrease in revenue. The company posted EPS loss of $0.75 in the quarter.