The introduction of share splits will result in the creation of new shares, thereby increasing the number of shares that each shareholder owns, albeit at a lower par value.
In a share split exercise, each share is split to create new shares. For example in a three-for-one share split, each existing share is split into three new shares. Consequently, the par value of the shares is reduced by three times in the process.
Executive Chairman of the KLSE, Dato' Mohd Azlan Hashim said the introduction of share splits are expected to further increase the liquidity of traded shares.
"In share splits the par value per share and the number of shares in issue are changed but the issued and paid-up capital and the reserves of the company are unaffected by the split.
"Additionally, share splits complements the effort by KLSE to standardise board lots at 100 units introduced since May 2003 by further enhancing affordability of shares to all categories of investors," he said.
For example, one board lot of 100 units of 'ABC' shares based on share price of RM12, at par value of RM1.00 per share will cost RM1,200. A share split undertaken by 'ABC' will reduce the price of the shares. The example is as follows:
|
'ABC' SHARES
|
Par Value (RM) |
Theoretical market price per share immediately after the
share split |
Theoretical market price per board lot of 100 units
immediately after the share split |
|
One share |
1.00 |
12.00 |
1,200 |
|
2 for 1 share split |
0.50 |
6.00 |
600 |
|
4 for 1 share split |
0.25 |
3.00 |
300 |
|
5 for 1 share split |
0.20 |
2.40 |
240 |
"The introduction of share splits will benefit a wide cross section of industry and market participants, Mohd Azlan said.
- Benefit to Shareholders and Investors
For shareholders and investors, when a share split is undertaken, the reduction in par value of the shares makes the price of the shares more attractive and affordable to a wider group of shareholders and investors. The number of shares held by the existing shareholders will be increased and investors can diversify their portfolio as the shares become more affordable. This will lead to more efficient price discovery and sustained liquidity for the shares.
- Benefit to Other Participants
For issuers, share splits may increase the liquidity of shares traded and this may encourage wider shareholder participation in their corporate exercises such as rights issue and other capital raising exercises. Share splits leading to greater affordability may result in investors taking the opportunity to purchase the shares. Dealer representatives and the stockbroking companies would benefit from the increased trading volume. Merchant bankers would also benefit from increased corporate finance activities.
"Share splits will indeed facilitate participation in the stock market and is a strategic move to enhance efficiency and allow for greater sophistication in the Malaysian capital market," Mohd Azlan said.
KLSE has revised its Listing Requirements (LR) to provide for share splits. A listed issuer wishing to undertake a share split or subdivision of its shares must fulfill certain criteria prescribed under the LR.
A company must make an announcement to KLSE of its intention to undertake a subdivision of shares, once approved by the Board of Directors. An application for approval of the proposed subdivision of shares must then be filed with KLSE and the Securities Commission (SC).
The framework for the subdivision of shares is shown as below.
For more information on share splits, please read the frequently asked questions, posted on the KLSE website www.klse.com.my.
