Home Knowledge Other Jurisdictions Southeast Asia Company Registration The Differences Between Rights Issue and Bonus Issue in Malaysia Companies
(1) |
When the company is short of cash, it can improve the financial structure by turning rights issues to capital to cover its debt obligations without incurring additional debt from a bank or financial institution with high interest rates. |
(2) |
Not all companies that pursue rights offering are in financial trouble. Companies with clean balance sheets may use rights issue to raise additional funds for business expansion such as acquisition. Instead of opting for debt, approaching the existing shareholders is an easier and better way of raising funds as it will not have an obligation of fixed interest payments. |
(1) |
Take up the rights Shareholders may subscribe a portion or all their rights entitlements to purchase the additional shares. |
(2) |
Renounce the rights It means that after accepting the right, instead of being overweight on the share, the shareholders can make quick gain by selling their rights entitlement to other investors who are not the current shareholders but interested in buying the company’s shares at a discounted price. However, it is not allowed to sell or transfer the rights to others under a non-renounceable rights issue. |
(3) |
Ignore the rights If the shareholders with the rights entitlements choose not to accept the offer, their shares would be diluted after the release of additional shares into the market, and they would have less ownership in the company. |
(1) |
To promote more active trading of the shares by increasing the number of shares in the market and reducing the price per share, making the shares more affordable and appealing to the investors. |
(2) |
Alternative to paying cash dividend to its shareholders due to shortage of funds. Instead of paying cash dividends, the company convert its retained earnings to bonus shares to reward its shareholders and build shareholder confidence. |
(3) |
To reflects sound financial health. When a company issues bonus shares out of profit or reserves, it reflects that the company is financially sound to keep growing and adding shareholder value. |
DIFFERENCE |
RIGHTS ISSUE |
BONUS ISSUE |
Creation |
Issued at a discounted price within a stipulated period. |
Issued at free of cost. |
Purpose |
The purpose is to raise fresh capital in the company.
|
The purpose is to reward shareholders in the form of shares instead of cash dividends and to bring the market price of the shares within attractive range. |
Transaction |
The company receives cash from the shareholders. |
Created out of accumulated profits and reserves. |
Subscription Requirement |
A minimum subscription is mandatory as shareholders need to pay for the issue. |
Subscription is not necessary as shares are issued at no charge to the shareholders. |
Renunciation Option |
Rights can be renounced either completely or partially under a renounceable rights issue. |
No renunciation option is available. |
Effect on Share Price |
Share price can be affected to some extent due to dilution in the value of the shares. |
Share prices reduce according to the proportion of bonus shares. |
(1) |
Both are made for the existing shareholders. |
(2) |
Both increase the number of issued shares in the share capital of the company. |
(3) |
Both are ordinary classes of shares. |
(4) |
Both increase the liquidity in the market for the shareholders to transact easily. |
(5) |
Neither of the issues dilute the existing shareholders’ ownership in the company if all the shareholders accepted all the new shares and/or there is no fractions arise from the issues. |
(6) |
Shareholders benefit from both issues as one comes at a discounted price, and one comes free of cost. |
Disclaimer All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage. |