More bonus issues in the offing


BY P.W. THONG

IF bonus share issues and share splits are two of the more favoured ways of rewarding shareholders, the boardroom agenda for many blue chip companies – now awash with higher reserves than ever before – must surely include that possibility.  

Judging from the sizeable balances in these firms' share premium accounts and distributable reserves, particularly after very decent profits in recent years, analysts are beginning to speculate that some top Bursa Malaysia-listed companies “could be due” for a bonus issue or a stock split exercise.  

Although companies are not obliged to do either, doing so had proved to be attractive propositions for many in the past. It pleased their shareholders to be rewarded with the new shares, and the market had tended to favour these firms with higher valuations over the longer term. 

Who are the likely contenders? A study by StarBiz found that 18 of the 50 largest companies by market capitalisation have yet to declare any bonus issues or stock split exercises since 1985 – the furthest record maintained by the Bloomberg database. 

Among the top companies that have yet to declare either a bonus issue or stock split exercise – but are able to do so – are Tenaga Nasional Bhd, Maxis Communications Bhd, Petronas Gas Bhd, and IOI Corp Bhd

And of the remaining 32 companies that had declared bonus issues or stock splits in recent years, only half had done so since 2000. 

All in, 34 or 68% of the top 50 companies in Bursa Malaysia could be likely contenders for such corporate exercises.  

In general, a bonus issue or stock split exercise were favoured because of their ability to generate wealth for shareholders over a longer term, most notably in multiplying the number of shares held, analysts said. 

Certainly, this can be clearly seen at Malayan Banking Bhd and Public Bank Bhd, two companies that had been generous with such issues. 

Maybank made four bonus issues and one rights issue between 1990 and 2001. StarBiz has calculated that a shareholder with 1,000 shares of Maybank in 1990 would have seen his shareholding grow to 9,000 shares by 2001, and made tidy gains of close to RM60,000. 

Public Bank Bhd, meanwhile, had declared six rounds of bonus issue exercises since 1990.  

Earlier this year, the company consolidated its share base by merging every two of its 50 sen par value shares into one Public Bank share of RM1 each.  

It is estimated that a shareholder who held 1,000 shares of Public Bank since 1990 would not only have seen the number of shares he held multiplied, but also made a net profit of over RM10,000 over the 14-year period. 

Analysts said a key consideration for bonus issues would be whether the company had sufficient reserves. In addition, other considerations include the size of the current outstanding share capital, its proportion relative to total authorised share capital, as well as the liquidity of the outstanding shares.  

It would also be wise for a company to first study the prevailing market sentiment before undertaking a proposed bonus issue, especially if the bonus issue were to be followed by a rights issue exercise, said an analyst with a local broking firm. 

“A company that declares a bonus issue during a bull market would see a speedier wealth creation process (as in share multiplication and price appreciation), whereas a company that announces a similar exercise during a bear market would see that effect take place slowly,” he said. 

Trying to entice shareholders to subscribe to rights shares, even with a bonus issue as a sweetener, would be met with a lukewarm response during a bear market, he added.  

Analysts said a stock split was quite different from a bonus issue in that it would not affect a company's reserves or its total paid-up share capital. But a company undertaking such an exercise would end up with more shares with a lower par value. 

This has increasingly become a popular way for some companies to increase their share base and trading liquidity.  

Recent examples have included Scomi Bhd, as well as the YTL group of companies, including YTL Power International Bhd, YTL Land and Development Bhd and YTL Cement Bhd.  

Some companies prefer to reward their shareholders with generous dividends instead of bonus issues or stock splits.  

They include foreign-owned entities like British American Tobacco (M) Bhd and Nestle (M) Bhd,. Hence, their level of distributable reserves is low. 

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