8/4/2019 SEBI Guidelines for Bonus Issues

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SEBI guidelines for BonusIssues

By Reena P

8/4/2019 SEBI Guidelines for Bonus Issues

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What are bonus shares??

Free share of stock given to currentshareholders in a company

capitalization of the reserves of the company

Increases the total number of shares issuedand owned

Earnings per share of the stock will drop inproportion to the new issue

This is compensated by the fact that shareholder will own more shares

Therefore the value of the investment should

remain the same although the price will adjustaccordingly

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General Guidelines

Articles of association

Sanctioned by share holders

Within authorized capital

Prior permission from Financial institution ifany loan availed from them

If issued to non resident members prior

consent of RBI must be takenGuidelines issued by SEBI must be compiled

with

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SEBI Guidelines-Chapter XV of SEBI( Disclosure &

Investor Protection) Guidelines, 20001. Pending conversion of FCDs/PCDs reserved bonus

shares

2. The shares so reserved may be issued at the time of

conversion- same terms on which the bonus issueswere made

3. Made out of free reserves built out of the genuineprofits or share premium

4. Reserves created by revaluation of fixed assets are notcapitalized

5. The declaration of bonus issue, in lieu of dividend, isnot made

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The bonus issue is not made unless the partly-paid shares, if any existing, are made fullypaid-up

Has not defaulted in payment of interest orprincipal in respect of fixed deposits andinterest on existing debentures or principal onredemption thereof

it has not defaulted in respect of the paymentof statutory dues of the employees such ascontribution to provident fund, gratuity, bonusetc

implement the proposal of issuing bonusshares within a period of_______ months from

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Reliance Power Bonus Issue-March2008

Reliance Power came with IPO in January 2008

Was oversubscribed 10.52 times at close of thefirst day of the offer opening for subscription

Market fell by 990 points after two weeks afterlisting

Issued bonus shares compensating investors forthe sharp fall in stock price

Ratio of 3 shares for every 5 shares held

Issued to existing shareholders excludingpromoters

stock has moved up by over 10 per cent next day

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Bonus shares resulted in reduction of the costof Reliance Power shares below the IPO priceas follows:Rs 269 per share for retail investors, 40%

lower than the IPO price of Rs 430.Rs 281 per share for other investors, 37%lower than the IPO price of Rs 450.

market analysts believe that the Reliance

Power Bonus Issue has been announced aspart of the managements admission that theissue was overpriced and it is a correctionmove to correct the aggressive pricing at

which the IPO was offered