Articles: Bonus issues and stock splits

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.
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!
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)
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.
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.
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.
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)
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)
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)
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)
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)
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)

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