market cap, page-3

One wonders what the SP would be if the ASX trading engine didn't create the artifical bottom price of 0.001.

Would it be trading at 0.0008, 0.0005 or some other value. Presumably as the percieved value continues to erode due to dillution and other factors as it has done in recent years, the gap between percieved value (say 0.0005) and the lowest unit price that ASX will allow (0.001) results in trading drying up as the market pricing mechanism is fundamentally incapable of working due to limits imposed by the system.

The usual way of dealing with this is for companies to reconstruct their capital and bring their SPs back within boundaries supported by the trading system. Ironically companiesthat find their SPs sitting on rock bottom are usually there because of funding issues, amongst other things. Capital reconstructions take real coin to implement and that is something that is a clear waste of funds for a company struggling to survive.

Just to add insult to injury, once the market to sell dries up due to the gap between value and the market artificial bottom, its harder to sell more shares to existing shareholders because the market to sell them no longer exists. A few die hards will cough up but not enough to cover the costs of the CR itself. This means that the only viable way to raise more capital is placements to bigger investors. As they know the company has no choice and can't go to its shareholders they demand a big discount.

Bad cycle