Bonus Issue: What's the impact to stock price?

Not long ago, received few calls from clients, inquiry about Public Bank stock price, their question was, why stock price suddenly drop a lot that day?

 

Actually, the stock price adjusted due to bonus issue, but many don't know how to calculate it. Take Public Bank as example, the announcement say the bonus issue 4:1, what the meaning?


The meaning of ratio is "New Unit: Existing Unit", in other word, every one unit, they will give you 4 new units. Since the final unit increase from 1 to 5 units, so, on Ex Date, the stock price will need to divide 5. When one compare stock price one day before Ex date, it will look as if the stock price went down a lot, but actually not, because for those entitle, the stock units also increase by 5 time.


Let see another example for SCIB, where it give free warrant at the ratio of 1 warrant for every 2 units, let see how to calculate the stock price on Ex date...

Assume warrant exercise price is RM1.77 and the stock price close at RM2.67 before Ex Date.

2 units of SCIB  = RM5.34

Free warrant      = RM1.77  (warrant in the money, so need to add in)

Total amount = RM5.34 + RM1.77 = RM7.11

So, one unit of SCIB after Ex is: RM7.11 divide 3 = RM2.37


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