Published on: Sep 14, 2023 8:07:00 AM
A share capitalisation issue (also known as a Bonus Issue) is when a company issues new shares of stock to its existing shareholders at a specific ratio. The new shares are typically issued at a discount to the market price of the company's existing shares.
Companies may opt for a capitalization issue to unwind cross-holding structures with other firms, simplifying their ownership arrangements. Simultaneously, they can utilize this approach to distribute profits accrued over time to their shareholders.
Prosus, one of the biggest companies on the JSE, announced a capitalisation issue recently as part of its plan to unwind its cross-holding with Naspers. Read the full announcement here.
Do investors pay for the shares they receive from a share capitalisation issue?
No, investors do not have to pay for the shares they receive from a share capitalisation issue. The company's retained earnings or other sources of capital are used to cover the value of the newly issued shares.
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