The share market price of the company has been adjusted while the listed companies are issuing bonus and rights shares. Companies set a book closing date before the general meeting and the issuance of rights shares. And on the same day, the market price of bonus and entitled shares is also adjusted.
By capitalizing the company’s savings or reserve fund, additional shares paid to shareholders as dividends are called bonus shares or stock dividends. Similarly, the first share issued to the shareholders to sell their shares in a proportionate manner, as the first right of purchase, is called entitled share or right share.
Shareholders do not have to pay for bonus shares. However, the shareholder has to pay for the right shares. Now, the question arises which kind of shareholders can get the bonus and entitled shares given by the company? The answer is yes, only the shareholders who have remained till the day before the book closing date will get the bonus and entitled shares given by the company.
What is book closing date?
Companies maintain a register of shareholders. Before the general meeting, distribution of dividends and issuance of right shares, the shareholders close the book for a certain period of time so that the registration of shares is not rejected and the name is not transferred.
The companies close the book in order to decide the date on which the existing shareholders will participate in the general meeting and will pay dividends and bonus shares and entitled shares. In this way, shares can be bought and sold even during the book closing period. But the return announced by the company will be received only by the shareholders who remain before the book close.
The market share price of the company is adjusted on the day of book closing for bonus shares and rights shares. The price has been adjusted as the number of shares will be increased by giving bonus and entitled shares. However, when the price is adjusted, the share price of the company decreases. Therefore, investors who buy and sell shares should be aware of this issue as well.
Now how is the price adjusted on bonus and entitled shares? That interest may increase. There are different methods for adjusting the price of bonus and entitled shares. After the issue of bonus shares, the market price of the company should be divided by adding 1 to the bonus share percentage to get the adjusted price. The last trading price of the day before the market price book closing should be taken.
Suppose Nepal Bank has announced 20% bonus share. And the market price on the day before the book closing day is Rs 300 per quintal. On this basis, the adjusted share price of Nepal Bank will be Rs. 250 per share. And Nepal Bank opens at the same price.
Method of calculating the adjusted price in the right shares
In order to calculate the adjusted share price in the rights issue, first the per share price of the rights shares should be multiplied by the right percentage and then linked to the market price. Dividing this number by the addition of 1 to the entitled share percentage, the adjusted value is maintained. It should be noted that in Nepal, the right share is issued at Rs 100 per share. Therefore, the price of the right share should be Rs 100 per share.