Forex right issues and bonus issues
Answers (2)
There is no such think as 'Forex' right/bonus issue. Forex is the generic term for the global Foreign Exchange market where currency pairs are predominantly traded. Surely, you can find other products on the platforms offered by Forex brokers, including shares. But both right and bonus shares are related to real ordinary equity holdings. Right issue is the right given by the company to existing shareholders to buy additional shares at a discount - this will lead to payment by the sharefolder to the company should the shareholder decide to go for it. Bonus issue is an alternative to dividend payments mainly - the company would capitalize its earnings and issue additional shares that would be distributed for free to existing shareholders proportionately with their holdings. On short term there would not be any benefit for the shareholder as the earnings are already included in the market price and the price would most probably adjust down to reflect the new P/E ratio (also depending on forecast). On longer term the money that the company retains (by not paying cash dividends) would help expanding and thus lead to capital gains/increased dividends payout in the future.
"Rights issues" and "bonus issues" are terms commonly associated with corporate finance and refer to different ways in which companies can issue additional shares to their existing shareholders. Here are the key differences between rights issues and bonus issues:
Rights Issues:
Purpose:
Fundraising: Rights issues are typically used by companies to raise additional capital. The company offers existing shareholders the right (but not the obligation) to purchase new shares at a discounted price.
Pricing:
Discounted: The new shares offered in a rights issue are usually priced at a discount to the current market price. This discount is an incentive for existing shareholders to exercise their rights and subscribe to the new shares.
Payment:
Cash Payment: Shareholders need to make a cash payment to subscribe to the new shares offered in the rights issue.
Impact on Ownership:
Dilution: Rights issues can lead to dilution of ownership for existing shareholders. If they choose not to participate in the rights issue, their percentage ownership in the company may decrease.
Use of Funds:
Capital Expansion: The funds raised from a rights issue are typically used for various purposes, such as funding expansion projects, reducing debt, or strengthening the company's financial position.
Bonus Issues:
Purpose:
Rewarding Shareholders: Bonus issues, also known as scrip issues or capitalization issues, are not intended for raising additional capital. Instead, they are a way for the company to reward its shareholders by issuing additional shares free of charge.
Pricing:
Free of Charge: Shareholders receive bonus shares without making any additional payment. The company capitalizes its reserves or profits to issue these additional shares.
Payment:
No Cash Payment: Shareholders do not need to make any cash payment to receive bonus shares. The distribution is typically made on a pro-rata basis.
Impact on Ownership:
No Dilution: Bonus issues do not result in dilution of ownership for existing shareholders. The number of shares held by each shareholder increases, but the proportional ownership remains the same.
Use of Funds:
Not for Capital Expansion: Since bonus issues are not aimed at raising capital, the funds are not raised from shareholders. Instead, existing reserves or profits are converted into additional shares.
In summary, rights issues are a way for companies to raise capital by offering existing shareholders the right to purchase new shares at a discount, while bonus issues involve issuing additional shares to shareholders as a form of reward without requiring any cash payment. Both mechanisms have different purposes and implications for shareholders.