Bonus Issues

What are Bonus Issues?

Bonus Issues, also known as Scrip Issue or Capitalisation Issue, are an issue of free additional shares to the existing shareholders of the company in direct proportion to their existing shareholding in the company. For instance, a 1-for-5 Bonus Issue will entitle an existing shareholder to receive 1 Bonus Share at no cost for every 5 ordinary shares held. While Bonus Issues result in an increase of shares in circulation, existing shareholders continue to retain their proportionate ownership in the company.

Bonus Issues are made out of a company’s share premium or distributable reserves, such as accumulated profits or retained earnings which are profits built up over the years not paid out in dividends but retained in the business. This transfer from the company’s reserves into paid-up share capital is thus known as capitalisation of reserves where an increase in shareholders’ equity is offset by a fall in the capital reserves or retained earnings. Since no new funds are raised in a Bonus Issue exercise, the company’s net worth or equity as measured by the share capital and reserves remains unchanged.

In a Bonus Issue, the nominal value (where applicable), also known as face or par value of the company’s shares does not change.

Companies pursue Bonus Issue for the following reasons:

  • To offer existing shareholders part of their respective interests in the undistributed profits retained in the company in the form of shares instead of cash distribution so as to conserve cash for business operations or expansions
  • To promote more active trading of the company’s shares in the stock market through a reduction in the market price per share within a more reasonable range as a result of the enlarged share capital base so that they are within the reach of the retail investors at large who might otherwise give the stock a miss due to its initial high price levels
  • To serve as a strong indication to the stock market of the company’s financial strength through its continued ability to service its larger equity base and future growth prospects, thereby possibly enhancing the credit standing and hence borrowing capacity of the company

How do Bonus Issues work?


The basis at which the stock is trading will be shown together with the stock’s trading data at whenever the company declares any entitlement.

After the announcement on the Bonus Issue, the shares will be trading on a “cum-bonus” basis as denoted by the “CB” remark. As long as an investor purchases the shares while they are trading on “CB” basis, the shareholder will be eligible to receive the Bonus Shares as declared by the company. Once the shares trade on “ex-bonus” basis as denoted by “XB” remark, an investor who purchases the shares will no longer be eligible to receive the Bonus Shares as declared by the company.


The details of the bonus issue entitlement are made available under the Events Calendar section of the Factsheet at

Last Cum Date [Tth Trading Day]

This is the last trading day on which the stock is still trading with the entitlement for the shareholder to receive the Bonus Shares attached to it.


The trading day starting which the stock is traded ex-bonus, that is, without the previously declared entitlement to participate in the Bonus Issue.

Record Date (Also known as the Books Closure Date) [T+3th Trading Day]

The date at the close of the business on which the securities accounts of shareholders must be credited with the company’s shares in order to participate in the Bonus Issue as declared by the company.


HongFok recently announces a 1-for-5 Bonus Issue with Ex-Date: 11/04/2012 and Record Date: 13/04/2012 (3 days after the Last Cum Date).

Assuming the company has an issued and paid-up share capital comprising of 600,000,000 shares as at the Record Date, it will issue 120,000,000 new shares pursuant to the Bonus Issue, bring the total number of shares in issue to 720,000,000 shares.

For every 5 shares Mr. Z owns in HongFok as at the Record Date which he bought at S$0.600 per share with a total capital outlay of S$6,000, he will receive 1 free additional share.

Assuming Mr. Z owns 10,000 shares in the company (10,000 shares / 600,000,000 shares  x 100% = 1.67% ownership) before the Bonus Issue, he will receive 2,000 new Bonus Shares in the company, giving rise to a total of 12,000 shares owned in the share capital of the company (12,000 shares / 720,000,000 shares x 100% = 1.67% ownership) upon completion of the Bonus Issue at a new base cost of S$6,000 / 12,000 shares = S$0.500. As illustrated, there is no change in Mr. Z’s shareholding in the company before and after the Bonus Issue despite the enlarged share capital while base cost per share is reduced.

With the Bonus Issue, the number of shares in issue increases by 20% while the value of the company remains unchanged. The stock market will, on the Ex-Date, will adjust the share price proportionately to account for the increased number of shares in issue.

Theoretical Ex-Bonus Price
(A theoretical price which does not take into account other corporate or market factors) 

= (A x Market Price Per Share)
                    (A + B) 

= (5 x S$0.605)
        (5 + 1)

= S$0.504 per share on Ex-Date 

Mr. Z’s shares trading on ex-bonus basis upon the conclusion of the Bonus Issue are therefore worth S$0.504 per share instead of S$0.605 per share trading on cum-bonus basis before the conclusion of the Bonus Issue. However, this loss as a result of a fall in share price is compensated for by the increase in number of shares owned following the Bonus Issue. Before the Bonus Issue, Mr. Z’s shares in the company have a market value of S$0.605 x 10,000 shares = S$ 6,050. After the Bonus Issue, Mr. Z’s shares in the company have a market value of S$0.504 x 12,000 shares = S$ 6,048 (slight variances from S$6,050 due to rounding differences during computation), thereby making no difference to the personal wealth of the shareholder as is the case with the net worth of the company.

Nevertheless, all other factors being equal, Bonus Issue, generally perceived by many to be a positive signal from the company on its future growth prospects could possibly lead to a consequent demand for the company’s shares, thereby causing the price to move up. In this regard, the ensuing share price increment can create shareholders’ wealth in the form of capital gain.

Effects of Bonus Issue on Historical Price Data and Per Share Ratios

As explained above, corporate actions such as Bonus Issues have an effect on the price of the share when it trades on ex-bonus basis following the conclusion of the corporate action. Hence, price adjustment on historical data prior to the Ex-Date will be applied as at market close on the Last Cum Date. The purpose of the historical price adjustment is to allow for comparability between prices on the Ex-Date and Cum Dates.

Considering that Bonus Issue only entails an increase in the number of shares in issue without any inflow nor outflow of funds into or out of the company, the company’s equity as well as net profits remain unchanged. Hence, share ratios such as the Earnings Per Share (Net Profits Attributable to Shareholders / Number of Shares in Issue) and Net Asset Value Per Share (Shareholders’ Equity / Number of Shares in Issue) will decline consequently to account for the enlarged share capital base following the Bonus Issue exercise. Despite the fall in the per share ratios, the overall value of the investment remains the same before and after the Bonus Issue as compensated for by a greater number of shares owned at no additional cost to the shareholder or investor alike.

Bonus Issues – Are they attractive value propositions for shareholders and investors?

Bonus Issue is a sign that the company is expanding equity but it is not a performance indicator. In the long run, Investors should look to the company’s fundamentals and growth prospects beyond Bonus Issue in making investment decisions.