Cautious with Bonus Issue

Further to my earlier articles on bonus issue,there is a further report by The Star on being prudent or cautious with bonus issue.

The salient points are:
STOCK investors in Malaysia,particularly the retailers,simply adore bonus issues as they are free shares and has the hope that the share price will rise again to pre-bonus levels.

The Bursa Saham Malaysia or KLSE has a differing view that not every bonus issue is good . Bursa has earlier amended its listing requirements to bar any listed company from undertaking such an exercise if its accumulated losses exceed the reserves to be capitalised for the bonus issue. The objective of the amendment is to minimises the possibility of companies with poor earnings track records coming up with bonus issues for the wrong reasons.

Corporate observers point out that these share issues should be used judiciously to reward shareholder loyalty,lower the share prices to more affordable levels,and boost share liquidity.

Certain irrationalities are recently observed in the issuance of bonus issue in the Malaysian share market:

• some companies have announced bonus issues just months after they had been  listed. In such cases,shareholder loyalty is not at all a factor.
• the penny stock category or thereabouts,should not issue bonus shares because their share prices are already low.
• companies in their early stages of growth should focus on adding true value instead of attempting to excite the stock market.
• Malaysian investors being overzealous of bonus issue without properly doing proper research of the companies issuing such bonus issue.
• Some companies have the share premium to issue bonus shares,but at the same time,their losses are growing every year.

Recently,Bursa Malaysia’s stand on bonus issues echoes the reasoning behind the decision last October by Securities Commission (SC) to reject a proposed rights issue by Farlim Group (M) Bhd as the rights issue was supposed to include a second call of 60 sen per share that will be capitalised from the share premium and revaluation reserve.The SC said no because the rights issue would result in an issue of securities that were not backed by assets. “This is due to the fact that as at Dec 31,2004,Farlim’s share premium reserves and revaluation reserves of RM29.6mil and RM5.8mil respectively,are deemed ‘exhausted’based on the shareholders’funds of RM109.9mil,compared to the issued and paid-up share capital of Farlim of RM120mil,as a result of accumulated losses of RM66.2mil.”

• Malaysia:Bursa Securities (KLSE) Amends Rules on Bonus Issues
• Rights Issue:Understanding Its Purpose,Mechanism &Difference Between Bonus Issue
• What Is Bonus Issue And What Is Its Purposes/Reasons (Part 1 of 2)
• AMolek ABORTS Proposed Rights,Bonus Issue
• How To Check For Companies Who Might Propose Bonus Issue
• Bonus Issue – Illustration And Accounting Treatment ( Part 2 of 2)
• How To Spot Companies Which Are Likely To Issue Bonus Issue