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Scrip issue |
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Scrip issueScrip issues are born out of an accounting quirk. When a company has retained profits, these appear on its balance sheet as 'Profit and Loss Account Reserves'. If the company has been trading profitably for some time, the reserves can far outweigh the Ordinary Share Capital of the company as a proportion of total Shareholders' Funds.For instance, a company might have Shareholders' Funds as follows:Ordinary share capital (10p par value x 500 million shares in issue) = £50 millionProfit and Loss Account reserves = £250 millionSuppose that this company has a share price of 900p which is quite 'heavy' for a UK company. The directors of the company might decide that the shares would be more marketable if the share price was lower. One way to achieve this is to have a scrip issue, the basis of which is that part of the P&L Reserves are converted into new share capital.In the above example, the company might convert £50 million of Reserves into new shares.It creates 500 million new shares at 10p par valueIt uses £50 million from the Reserve account to make them 'fully paid'.It distributes the new shares to existing shareholders pro rata to their existing holdingIn this case, there were 500 million shares before the scrip and 500 million new shares have been created, so shareholders would get one new share for every share they already hold.After the scrip issue shareholders funds would look like this:Ordinary share capital (10p par value x 1 billion shares in issue) = £100 millionProfit and Loss Account reserves = £200 millionShareholders should not pop the champagne corks though. True, individually they have twice as many shares as they had before. But total shareholders funds haven't changed. They are still £300 million. All that has happened is that £50 million has been moved from one row in the balance sheet to another. The price of the shares will be adjusted to reflect the fact that there are twice as many in issue. Instead of being 900p it will halve to 450p.The other point to note is that if the company pays the same dividend per share after a scrip issue as it did the previous year, it will in fact be paying out a lot more. So the dividend per share will usually drop after a scrip issue.Similar MatchesOversubscription privilegeOversubscription privilegeIn a rights issue, arrangement by which shareholders are given the right to apply for any shares that are not taken up. ScripophilyScripophilyA term coined in the mid-1970s to describe the hobby of collecting antique bonds, stocks and other financial instruments. Values are affected by beauty of the certificate and the issuer's role in world finance and economic development. JavaScriptJavaScriptAn object-based scripting language which can be used to add interactive and dynamic features to HTML Web pages. DescriptorDescriptorA variable describing assets, used as an element of a risk index. For example, a volatility risk index, distinguishing high volatility assets from low volatility assets, could consist of several descriptors based on short term volatility, long term volatility, systematic and residual volatility, etc. SubscriptionSubscriptionAgreement to buy new issue of securities. Further SuggestionsScriptsubscription terms Subscription agreement scrip dividend Subscription warrant The Harmonized Commodity Description and Coding System Caveat emptor, caveat subscriptor Subscription right ex scrip subscription price VBScript Subscription price Technical descriptors Scrip Prescriptive Easement Transcript of Account Scripophily Subscription privilege |
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