soalan 5 assignment - Stock repurchase and stock split and...

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This paper discuss the stock repurchase and stock split for Genting Berhad company as well as the impact on the shareholders of the company. The shareholders of the Company had granted a mandate to the Company to repurchase its own shares at the Annual General Meeting of the Company held on 23 June 2008. During the financial year, the Company repurchased 7,592,900 ordinary shares of 10 sen each of its issued share capital from the open market at an average price of RM4.62 per share. The share buy back transactions were financed by internally generated funds. As at 31 December 2008, the total number of shares purchased was 8,592,900 and held as treasury shares in accordance with the requirement of Section 67A of the Companies Act, 1965. A share split exercise is not supposed to impact the fundamentals and value of a stock at all. The price is not cheaper on a valuation basis although the number of shares increases and the price also reduces in proportion. For an assumption, an investor owns 100 shares of a company that trades at RM10 each. After a 1-into-2 split, the investor will have 200 shares trading at RM5. The exercise has no effect on the value of the investor's holding; it was RM1,000 before the split and it stays the same after that. The dividend per share will fall proportionately if the company pays dividend. Most people have a different take on the matter, driven by the belief that cheaper shares always have a better chance of appreciating in absolute value. For instance, people are likely to think that it is pretty easy for a 50 sen stock to double in value to RM1. However, it would be an almost impossible and arduous climb for a RM10 stock to go to RM20. It is a myth however many in the investing fraternity subscribe to this. A clear example of this line of thought in action was when Genting Bhd and subsidiary Resorts World Bhd announced on March 30 the splitting of their 50 sen shares into five 10 sen shares each. The two companies' shares went ex on April 11. Following this, the shares arising from the share split were credited on the evening of April 13 and settlement took place on April 16. Page | 1
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This note was uploaded on 02/06/2011 for the course BUS 663 taught by Professor Hjmahyudin during the Spring '11 term at International Islamic University Malaysia.

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soalan 5 assignment - Stock repurchase and stock split and...

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