Rush for split shares blamed on investors' ignorance
Wednesday, 5 May 2010
Mohammad Mufazzal
It is totally a psychological factor that investors rush to buy shares, set for split, at high price, although the face value split does not add anything to the fundamentals of a company, regulators and analysts said.
They made the comment after share prices of some companies including banks jumped on their announcements that the face value of their shares would be split to Tk 10 each from the existing Tk 100.
Some companies joined a spree of announcing plans on face value split, as the Securities and Exchange Commission (SEC) decided to set a uniform face value of all stocks in line with a government instruction.
But on March 1 last, the regulator also warned that any listed company must abstain from making announcement about face value split during disposal of the issue in question.
The companies, which made announcement on face value split are Prime Finance, Fareast Islami Life Insurance, Aftab Automobiles, First Security Bank, Al Arafah Islami Bank, Social Islami Bank, Southeast Bank and Premier Bank.
Following the suit another three companies-Jamuna Bank, Summit Port and Summit Alliance-also declared plans on face value split from Tk 100 to Tk 10 despite the regulator's direction to abstain from making such announcement until disposal of the issue.
SEC member Mansur Alam said the face value split increases the number of shares, but they do not add anything to the fundamentals of a company.
"It's nothing but a psychological factor that some investors chase the split shares. It does not indicate any development of a company, as the fundamentals remain same," he told the FE.
He said the main fundamental of a company lies in its Net Asset Value (NAV), which is not changed or affected despite split of the face value.
Former SEC chairman Faruq Ahmad Siddiqui echoed the same view, saying that the split does not bring any benefit to the shareholders.
"The demand for split shares increases, simply because they bear a psychological leverage. The company directors are guided by the fact that they will just have a greater number of shares in hands," Mr Siddiqui said.
"Such a situation arises in the market out of sheer ignorance of a large number of investors," he said.
It is totally a psychological factor that investors rush to buy shares, set for split, at high price, although the face value split does not add anything to the fundamentals of a company, regulators and analysts said.
They made the comment after share prices of some companies including banks jumped on their announcements that the face value of their shares would be split to Tk 10 each from the existing Tk 100.
Some companies joined a spree of announcing plans on face value split, as the Securities and Exchange Commission (SEC) decided to set a uniform face value of all stocks in line with a government instruction.
But on March 1 last, the regulator also warned that any listed company must abstain from making announcement about face value split during disposal of the issue in question.
The companies, which made announcement on face value split are Prime Finance, Fareast Islami Life Insurance, Aftab Automobiles, First Security Bank, Al Arafah Islami Bank, Social Islami Bank, Southeast Bank and Premier Bank.
Following the suit another three companies-Jamuna Bank, Summit Port and Summit Alliance-also declared plans on face value split from Tk 100 to Tk 10 despite the regulator's direction to abstain from making such announcement until disposal of the issue.
SEC member Mansur Alam said the face value split increases the number of shares, but they do not add anything to the fundamentals of a company.
"It's nothing but a psychological factor that some investors chase the split shares. It does not indicate any development of a company, as the fundamentals remain same," he told the FE.
He said the main fundamental of a company lies in its Net Asset Value (NAV), which is not changed or affected despite split of the face value.
Former SEC chairman Faruq Ahmad Siddiqui echoed the same view, saying that the split does not bring any benefit to the shareholders.
"The demand for split shares increases, simply because they bear a psychological leverage. The company directors are guided by the fact that they will just have a greater number of shares in hands," Mr Siddiqui said.
"Such a situation arises in the market out of sheer ignorance of a large number of investors," he said.