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Q：
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What are the differences between rights issues and bonus issues in Malaysia?
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A：
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DIFFERENCE
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RIGHTS ISSUE
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BONUS ISSUE
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Creation
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Issued at a discounted rate for a specified period. Issued for free.
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Issued for free.
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Purpose
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To raise new capital for the company.
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Aimed at rewarding shareholders in the form of shares instead of cash dividends and making the share price more attractive.
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Transaction
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The company receives cash from shareholders.
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Generated from accumulated profits and reserves.
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Subscription Requirement
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Shareholders must subscribe and pay for the issue
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No subscription required.
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Renunciation Option
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Shareholders can renounce their rights fully or partially in a renounceable rights issue.
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No renunciation option available.
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Effect on Share Price
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Share price might be affected to some extent due to the share value dilution.
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Share prices decreases proportionately to the number of bonus shares issued.
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Q：
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Why does a company offer rights issue?
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A：
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When a company faces cash shortages, it can utilise rights issues to enhance its financial structure by raising capital to cover debt obligations without acquiring additional debt from banks or financial institutions.
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Even financially sound companies may pursue rights offerings to raise funds for business expansion, such as acquisitions. Opting for rights issues allows companies to raise funds from existing shareholders without the obligation of fixed interest payments associated with debts.
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Q：
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Why does a company offer bonus issue?
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A：
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Encouraging higher trading volume by expanding the share count in the market and lowering the share price, thereby enhancing affordability and attractiveness for investors.
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Serving as a substitute for cash dividends when the company lacks sufficient funds. Rather than distributing cash dividends, the company utilizes its retained earnings to issue bonus shares, thereby rewarding shareholders and fostering their trust.
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Demonstrating good financial stability. When a company issues bonus shares from its profits or reserves, it indicates the company's strong financial position and its ability to sustain growth while enhancing shareholder value.
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Q：
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What are the similarities between rights issues and bonus issues?
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A：
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Both right shares and bonus shares are distributed by a company to its existing shareholders
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They do not diminish the current ownership stake of existing shareholders’ in the company
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Both right shares and bonus shares are issued with the objective to increase the company’s capital base.
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Shareholders gain advantages from both offerings, with one being offered at discounted price and the other provided free of cost.
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Q：
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What are the limitations for rights issues and bonus issues?
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A：
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Rights issues might not attract new investors as much as regular shares, potentially limiting the demand and make it harder for the company to raise the desired amount of capital. If the demand for rights shares falls shorts of the available shares, the company may struggle to reach its capital-raising goals.
Bonus shares have the potential to reduce earnings per share for current shareholders by increasing the total number of shares available, which could lower the value of the stock. Existing shareholders might view bonus shares unfavourably because they dilute the worth of their investments without providing any extra benefits.
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FAQ
