Bonus issues a flop show

Bonus issues, a free gift from listed companies, have brought little cheer to investors in 2008 with shares of 93 per cent of companies having declined by around 52 per cent from their ex-bonus levels.

The ex-bonus price is adjusted in proportion to new shares issued to shareholders. Unlike a rights issue, a bonus issue does not risk diluting investment. While the earnings per share decline on account of increase in the capital base, investors are given more shares as compensation.

Nevertheless, only four out of 60 bonus issues in 2008 have been fruitful in terms of price appreciation over ex-bonus prices. Only United Phosphorus, Veer Energy, Thakkers Developers and Kanani Industries have appreciated from their ex-bonus levels. The remaining 56 stocks have seen value erosion between 10 per cent and 90 per cent.

Larsen and Toubro, Biocon, Siemens, Sesa Goa, STC and Rolta, which issued bonus shares in the ratio of 1:1 (one bonus equity share for every one share held), have declined more than 35 per cent each over their ex-bonus prices. Reliance Power, Gail, GMDC, NMDC and HDIL are among others whose shares have declined by over 50 per cent each from their ex-bonus prices.

The number of bonus issues at 60 hit a four-year low in 2008 compared to 76 in 2007. Total 81 companies issued bonus shares in 2006 and 85 in 2005. It was way back in 1994 that the number of bonus issues hit an all-time high of 159, followed by 126 in 1995 and 101 in 1996.

As many as 23 companies have declared bonus shares two-to-three times in the last four years. While Gujarat Apollo Industries, Gujarat NRE Coke and Swasti Vinayaka Gems issued bonus shares thrice each, Larsen and Toubro, MM Forgings, Sesa Goa and Bank of Rajasthan declared bonus issues twice each in the last four years.

Reliance Power issued bonus shares in the ratio of 3:5 after the stock declined 22 per cent to Rs 351.40 against its issue price of Rs 450 per share. Opto Circuits issued bonus shares in the last six consecutive years. In 2008, the company announced bonus shares in the ratio of 7:10.