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investor
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Joined: 06/Sep/2006
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   Posted: 26/Sep/2006 at 3:08pm |
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Bonus issue is nothing but CAPLITALIZATION OF RESERVES.
The company increases the paid-up equity of the company by converting
money from reserves to equity shares.
But Basant, there is one very important difference between a bonus
and a stock-split, which you have not mentioned.
It is about the Face Value.
In case of bonus, the Face Value of the Share does not change, the new shares are also of the same FV as the existing ones.
But in case of split, the FV also gets reduced accordingly.
This is significant from the dividend point of view, coz dividends are anounced as % of FV of the share.
For example, if you had 100 shares of FV 10 each of a company, and they issued a 1:5 bonus, then ex-bonus you would have 500 shares.
Now if they announced a 100% dividend,
you would get 500*10 = 5000 Rs. as total dividend.
But if they went if for a 1:5 split, then you would still got 500 shares,
but if they had announced 100% dividend, it is 100% of FV 2, so you
wouldve got only 500*2 = 1000 as total dividend.
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basant
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Posted: 26/Sep/2006 at 3:18pm |
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Yes, that is why SEBI has asked companies to declare press release on dividend on per share basis also because 100% on Rs 1 after a split from a Rs 10 share looks great but means little.
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Equity Buff
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Joined: 30/Aug/2006
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Posted: 26/Sep/2006 at 4:29pm |
Dear Investor,
There is a mistake in your post.
If you had 100 shares in a company and the company issued a bonus of 5 shares for every share held (as mentioned by you in your post), exbonus you will have a total of 600 shares(100 original + 500 bonus) of the company and not 500 shares as mentioned by you. Now if the company announced a 100% dividend, then total dividend you will receive is Rs. 6000/- (not Rs. 5000).
I am sure the mistake you made was by oversight so pls take this message in the right spirit.
Rgds.
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investor
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Posted: 26/Sep/2006 at 5:45pm |
hi equity buff, i also realized that as soon as my post came online, but didnt feel like editing it, as the main point was about the FV difference between bonus and split, and not necessarily the value mentioned - that was just taken as an example to illustrate better. But you are right in what you have pointed out, and now others will also know about the correct value. Thanks for that, and dont worry, no offence taken! 
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reetesh
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Posted: 28/Sep/2006 at 1:53pm |
Hi Sir,
I want to know how does FCCB`s conversion takes place and when, just an example last year Mirza International raised $50 Mn. through FCCB and had green shoe option to raise $50 mn. more. I dont know how they convernt and does this converion raises equity capital thus bring down EPS and how important is conversion price, I mean take they fixed Rs.400 for converion and Rs.250 for conversion will Rs.400 means more equity and Rs.200 less equity dilution.
Regards.
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When going gets tough, that’s when tough (people) gets going.
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basant
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Posted: 28/Sep/2006 at 2:19pm |
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FCCB gives the holder a right to buy shares either at predefined rate. Now if the conversion takes place aat rs 400 less equity is issued then at alower price. On the other hand if the market price is Rs 35 no one will like to get it converted that is because they can buy it from the market. In this case it is retired as a bond without equity dilution.
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reetesh
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Posted: 28/Sep/2006 at 2:29pm |
So, FCCB holder has option to convert or not to convert? If current market price is 150 and conversion price is 300 then he may not convert looking at the price difference of 100%, in this case does he get some interest on the amount? And one point that I did`nt get that does higer conversion price means more dilution and low conversion means less dilution or price don`t make any difference only amount does?
Regards.
Edited by reetesh - 28/Sep/2006 at 2:32pm
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basant
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Posted: 28/Sep/2006 at 2:52pm |
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Amount is fixed so high price means less dilution and low price high dilution- if they convert.
Edited by basant - 28/Sep/2006 at 4:46pm
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