| When the MSEB (formerly known as the KLSE) announced the introduction of share splits to increase liquidity in the market, many investors wondered what it was about.
What is a share split?
Let us start with a simple example. You have a RM100 note and someone offered you two RM50 notes for it. Do you lose or gain anything if you accept the offer? It is simple arithmetic. Even though you have two notes, the total value remains unchanged, that is RM100. You don’t lose anything.
A similar principle is applicable in a share split exercise. In general, a share split is a corporate exercise where the company’s share is divided into two or more shares resulting in the creation of new shares and increasing the number of shares held by each shareholder. However, it will not result in changes to the actual proportion of equity held in the company.
What happens to the price?
Normally, when a company undertakes a share-split exercise, literally the price of the shares will be reduced. Here is an example on a company’s share price after the share-split exercise.
Assuming XYZ Bhd shares have a par value (face value) of RM1 per share and is currently trading at RM10 per share. Therefore, the market price of one board lot (100 units) of XYZ Bhd shares will be RM1,000 (assuming that other factors remain constant).
Before share-split exercise:
XYZ Berhad's shares |
Par value (RM) |
Theoretical market price (RM) |
Theoretical market price per board lot of 100 units before the share split
(RM)
|
One share |
1.00 |
10.00 |
1, 000 |
In a share-split exercise, a share may be divided into two (2 for 1 share split), or four (4 for 1 share split) or more . |
