Articles: Bonus issues and stock splits
SFC fines Deutsche Securities Asia Ltd HK$2.45m over bonus share SNAFU
| Statement of Disciplinary Action
SFC, 24-Jun-2021
Not for the first time, a firm falls foul of the antiquated HK listco practice of issuing "bonus shares", which temporarily freeze part of the market cap until they are issued and do nothing for shareholder value except to generate expenses. Also, Deutsche took 6 months to confess to the SFC.
SFC, 24-Jun-2021
Not for the first time, a firm falls foul of the antiquated HK listco practice of issuing "bonus shares", which temporarily freeze part of the market cap until they are issued and do nothing for shareholder value except to generate expenses. Also, Deutsche took 6 months to confess to the SFC.
Add New Energy (2623) cancels "bonus" issue of shares
| Proposed bonus issue
Company announcement, 23-Apr-2020
It has a share price of $0.05. Any scrip issue or split which would result in a price below $1 is prohibited by Listing Rule 13.64A. Also, the directors were either stupid or lying when they said that they believed the bonus issue would "be a return to the long-term support of the Shareholders". It just costs money to cut the pizza into smaller slices.
Company announcement, 23-Apr-2020
It has a share price of $0.05. Any scrip issue or split which would result in a price below $1 is prohibited by Listing Rule 13.64A. Also, the directors were either stupid or lying when they said that they believed the bonus issue would "be a return to the long-term support of the Shareholders". It just costs money to cut the pizza into smaller slices.
Chunli Medical (1858) tries to justify taxed bonus issue
Company announcement, 23-Apr-2019
This follows a Webb-site complaint to HKEX on 21-Feb-2019. It is against shareholders' interests to send them bonus shares when that triggers a tax on the CNY1 par value of the new shares. The tax is deducted from a cash dividend, costing H-share owners RMB0.1. For domestic owners it is RMB0.2, which, with tax on the dividend, is more than the dividend, so they get no net dividend and owe the company money which it now asks them to pay!
Company announcement, 23-Apr-2019
This follows a Webb-site complaint to HKEX on 21-Feb-2019. It is against shareholders' interests to send them bonus shares when that triggers a tax on the CNY1 par value of the new shares. The tax is deducted from a cash dividend, costing H-share owners RMB0.1. For domestic owners it is RMB0.2, which, with tax on the dividend, is more than the dividend, so they get no net dividend and owe the company money which it now asks them to pay!
SFC fines SFM HK Management Ltd HK$1.5m for accidentally short-selling bonus shares of Great Wall Motor (2333)
SFC, 6-Dec-2018
After Great Wall Motor (2333) went ex a 2:1 bonus issue, SFM accidentally sold its bonus shares before they were issued. This is another reminder that bonus issues in effect temporarily delist part of the company, in this case, 2/3, because only the pre-bonus shares are tradeable between the ex-date and the delivery date. In September, the SFC fined Huatai Financial Holdings Ltd HK$800k for doing the same thing on the same bonus issue.
SFC, 6-Dec-2018
After Great Wall Motor (2333) went ex a 2:1 bonus issue, SFM accidentally sold its bonus shares before they were issued. This is another reminder that bonus issues in effect temporarily delist part of the company, in this case, 2/3, because only the pre-bonus shares are tradeable between the ex-date and the delivery date. In September, the SFC fined Huatai Financial Holdings Ltd HK$800k for doing the same thing on the same bonus issue.
SFC fines Huatai HK$800k for accidentally short-selling bonus shares of Great Wall Motor (2333)
SFC, 17-Sep-2018
Ironically, the SFC makes the same mistake as Huatai made when dealing. The SFC news says: "On 30 September 2015, when the bonus shares started trading on an ex-rights basis…". But the bonus shares didn't start trading until 14-Oct, that's the whole point. The existing shares began trading ex-bonus on 30-Sep. Let this be a reminder that when a company declares a bonus issue, it effectively delists a portion of its shares from the ex-date until the bonus shares are issued.
SFC, 17-Sep-2018
Ironically, the SFC makes the same mistake as Huatai made when dealing. The SFC news says: "On 30 September 2015, when the bonus shares started trading on an ex-rights basis…". But the bonus shares didn't start trading until 14-Oct, that's the whole point. The existing shares began trading ex-bonus on 30-Sep. Let this be a reminder that when a company declares a bonus issue, it effectively delists a portion of its shares from the ex-date until the bonus shares are issued.
Submission on Capital Raisings by Listed Issuers
Webb-site responds to HKEX's consultation which, while positive, ignores several key issues and does not go far enough in others. Have your say! (24-Nov-2017)
Webb-site responds to HKEX's consultation which, while positive, ignores several key issues and does not go far enough in others. Have your say! (24-Nov-2017)
CCT Land (0261) shareholders veto share consolidation
Company announcement, 28-Sep-2017
Persons holding 28.11% of the company voted against, leaving the price stuck at $0.01 offered, no bid.
Company announcement, 28-Sep-2017
Persons holding 28.11% of the company voted against, leaving the price stuck at $0.01 offered, no bid.
Xinjiang Goldwind (2208) hits investors with taxable bonus shares
Company circular, 12-May-2017
Bonus shares are normally just a waste of paper and costs, but when an H-share issuer does one, by transferring retained profits to share capital, then it triggers a 10% witholding tax on par value. Yes, it's stupid, but China thinks that a bonus share is a benefit. So how do you withhold tax on a bonus share? Answer: you declare a cash dividend and deduct it from that. Goldwind will pay a dividend of CNY0.20, less 10% tax, less CNY0.03 for tax on the bonus shares. So in effect, there will be a 25% withholding tax on this dividend. Stupid.
Company circular, 12-May-2017
Bonus shares are normally just a waste of paper and costs, but when an H-share issuer does one, by transferring retained profits to share capital, then it triggers a 10% witholding tax on par value. Yes, it's stupid, but China thinks that a bonus share is a benefit. So how do you withhold tax on a bonus share? Answer: you declare a cash dividend and deduct it from that. Goldwind will pay a dividend of CNY0.20, less 10% tax, less CNY0.03 for tax on the bonus shares. So in effect, there will be a 25% withholding tax on this dividend. Stupid.
Weichai Power (2338) hits investors with taxable bonus shares
Company circular, 20-Apr-2017
Yes, it's stupid, but China thinks that a bonus share is a benefit, not just carving the pizza into smaller slices. Weichai Power has declared a final dividend of CNY0.25, but will also make a 1:1 bonus issue out of retained profits, so the new shares will be subject to 10% withholding tax on par value. That results in tax of CNY0.025 on the dividend, CNY0.10 on the bonus share, and a total tax of CNY0.125, or 50% of the dividend. It's even worse for PRC human investors on the SZ-HK Connect, who will suffer a 20% withholding tax, reducing the dividend to zero!
Company circular, 20-Apr-2017
Yes, it's stupid, but China thinks that a bonus share is a benefit, not just carving the pizza into smaller slices. Weichai Power has declared a final dividend of CNY0.25, but will also make a 1:1 bonus issue out of retained profits, so the new shares will be subject to 10% withholding tax on par value. That results in tax of CNY0.025 on the dividend, CNY0.10 on the bonus share, and a total tax of CNY0.125, or 50% of the dividend. It's even worse for PRC human investors on the SZ-HK Connect, who will suffer a 20% withholding tax, reducing the dividend to zero!
SEHK tackles bonus issues, misses the obvious
The Stock Exchange, in a guidance letter tonight, says it will reject listing of bonus issues of 200% or more, because they tie up too much of the float between the ex-date and distribution date. They propose stock splits as an alternative, but they omit the faster and better way to reduce board lot value, which HKEx itself used in 2008. (27-Apr-2016)
The Stock Exchange, in a guidance letter tonight, says it will reject listing of bonus issues of 200% or more, because they tie up too much of the float between the ex-date and distribution date. They propose stock splits as an alternative, but they omit the faster and better way to reduce board lot value, which HKEx itself used in 2008. (27-Apr-2016)
Haitian Hydropower (8261) proposes 4:1 stock split
Company circular, 15-Apr-2016
The board fails to state that this will double the percentage minimum bid-offer spread. It will reduce the price from $1.32 (where the spread is $0.01) to $0.33 (where the spread is $0.005), so the spread rises from 0.76% to 1.52%. That is negative for liquidity. If they are concerned about the cost of a board lot (although at $5280, it is a reasonable quantum) then they should halve the board lot instead. Note that in 2012 the SFC issued a concentration warning in this stock.
Company circular, 15-Apr-2016
The board fails to state that this will double the percentage minimum bid-offer spread. It will reduce the price from $1.32 (where the spread is $0.01) to $0.33 (where the spread is $0.005), so the spread rises from 0.76% to 1.52%. That is negative for liquidity. If they are concerned about the cost of a board lot (although at $5280, it is a reasonable quantum) then they should halve the board lot instead. Note that in 2012 the SFC issued a concentration warning in this stock.
Dalian Port (2880) seeks shareholders' approval to destroy value
Company announcement, 24-Mar-2016
The announcement, filed in mark-up form, proposes an issue of 3 so-called "Dividend Bonus Shares" for every 10 held, by capitalising retained earnings. It doesn't disclose that for most H-shareholders, there will be a witholding tax of 10% on par value, costing holders $0.03 per existing share, deducted from the cash dividend of $0.075, increasing the effective tax on that from 10% to 50%. DP says this is "a return to the long-term support and care of the Shareholders". That's false and misleading. Even without the tax, bonus shares do not provide an additional return.
Company announcement, 24-Mar-2016
The announcement, filed in mark-up form, proposes an issue of 3 so-called "Dividend Bonus Shares" for every 10 held, by capitalising retained earnings. It doesn't disclose that for most H-shareholders, there will be a witholding tax of 10% on par value, costing holders $0.03 per existing share, deducted from the cash dividend of $0.075, increasing the effective tax on that from 10% to 50%. DP says this is "a return to the long-term support and care of the Shareholders". That's false and misleading. Even without the tax, bonus shares do not provide an additional return.
IECCT (8081) proposes "final dividend by way of bonus issue"
Company announcement, 23-Mar-2016
Comment: this is deceptive. A bonus issue is not a dividend.
Company announcement, 23-Mar-2016
Comment: this is deceptive. A bonus issue is not a dividend.
E. Bon bonus beggars belief
A proposal to halve the price and double the board lot will also double the minimum bid-offer spread to 1.55%. No competent board could believe that this is in shareholder interests and will enhance liquidity. We call on the SFC and Stock Exchange to act. (19-Feb-2016)
A proposal to halve the price and double the board lot will also double the minimum bid-offer spread to 1.55%. No competent board could believe that this is in shareholder interests and will enhance liquidity. We call on the SFC and Stock Exchange to act. (19-Feb-2016)
KTL (0442) just believes
KTL's "reasons" for a stock split proposal are just beliefs without reason, and those beliefs are wrong. (14-Oct-2015)
KTL's "reasons" for a stock split proposal are just beliefs without reason, and those beliefs are wrong. (14-Oct-2015)
You are silly, Yuhua
Yuhua Energy (2728) proposes a 2 for 1 bonus issue and a 4.5-fold board lot increase that it wrongly claims will reduce the market value per board lot and thereby enhance trading liquidity. In fact it does the opposite. (17-Sep-2015)
Yuhua Energy (2728) proposes a 2 for 1 bonus issue and a 4.5-fold board lot increase that it wrongly claims will reduce the market value per board lot and thereby enhance trading liquidity. In fact it does the opposite. (17-Sep-2015)
Bonus hogwash
The Stock Exchange and SFC continue to allow companies to make false and misleading statements about "bonus" issues of shares - we take a look at the latest example. (11-Jun-2015)
The Stock Exchange and SFC continue to allow companies to make false and misleading statements about "bonus" issues of shares - we take a look at the latest example. (11-Jun-2015)
Guangdong Yueyun bonus share vetoed
H-share holders have narrowly vetoed a bonus share issue by Guangdong Yueyun (3399) which would have knocked 40% off the dividend in additional tax and destroyed 1.5% of value for H-share investors. This is the board's idea of "providing returns to shareholders". (30-Jun-2014)
H-share holders have narrowly vetoed a bonus share issue by Guangdong Yueyun (3399) which would have knocked 40% off the dividend in additional tax and destroyed 1.5% of value for H-share investors. This is the board's idea of "providing returns to shareholders". (30-Jun-2014)
Truly pointless bonus issues and splits
Why do boards propose bonus issues and stock splits? We look at the drawbacks and the false and misleading reasons often advanced for such actions. If liquidity is really a concern, then a reduction in board lot size is the simplest and best way to go. Splits and bonuses are more a sign of desperation than of a sophisticated, value-focused board. (27-Dec-2010)
Why do boards propose bonus issues and stock splits? We look at the drawbacks and the false and misleading reasons often advanced for such actions. If liquidity is really a concern, then a reduction in board lot size is the simplest and best way to go. Splits and bonuses are more a sign of desperation than of a sophisticated, value-focused board. (27-Dec-2010)
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