Is this a stock split? Or something more sinister?

benbay001

Hi all,

After running some screens, i started looking into a company called Pentamaster International who are Malaysian, listed in Hong Kong.

They were ticking all the boxes until i started reading the recent corporate announcements (RNS if you will) and came across this, which im hoping someone smarter than myself could tell me their intent? The share price is 1.7 Hong Kong Dollars, so its not as though its crying out for a share split.

The Board proposed a Bonus Issue of Shares on the basis of one (1) Bonus Share for every two
(2) existing Shares held by the Qualifying Shareholders whose names appear on the register of
members of the Company on the Record Date. The Bonus Shares to be allotted and issued will
be credited as fully paid at par by way of capitalisation of an appropriate amount of the share
premium account of the Company. The register of members of the Company will be closed from
Friday, 18 June 2021 to Tuesday, 22 June 2021, both days inclusive, to ascertain the entitlement
of the Shareholders under the Bonus Issue.....

...Assuming that no further Shares will be issued or repurchased on or before the Record Date, on
the basis of 1,600,000,000 existing Shares in issue as at the date of this announcement, it is
expected that a total of 800,000,000 new Shares would be allotted and issued under the Bonus
Issue, representing 50% of the existing issued share capital of the Company as at the date of this
announcement, or 33.33% of the issued share capital of the Company as enlarged by the Bonus
Issue. Upon completion of the Bonus Issue, there will be a total of 2,400,000,000 Shares....

...For those Overseas Shareholders, enquiry will be made by the Board pursuant to Rule 13.36(2) (a)
of the Listing Rules. Upon such enquiry, if the Board is of the view that the exclusion of the
Overseas Shareholders is necessary or expedient, the Bonus Shares will not be granted to the
Excluded Shareholders. In such circumstances, arrangements will be made for the Bonus Shares
which would otherwise have been issued to the Excluded Shareholders, if any, to be sold in the
market as soon as practicable after dealing in the Bonus Shares commences. Any net proceeds of
sale, after deduction of expenses, will be distributed in Hong Kong dollars to the Excluded
Shareholders, if any, pro rata to their respective shareholdings and remittances therefor will be
posted to them, at their own risk, unless the amount falling to be distributed to any such persons is
less than HK$100.00, in which case it will be retained for the benefit of the Company...

The full release can be found here https://pentamaster.com.my/wp-content/uploads/2021...

Is the intention to dilute overseas shareholders?

Anyone got any idea what advantage this would have for the company? It looks like a share split but i cant workout why.

Massive thanks in advance.

wmb194

Yes, looks like a share split. A quick Google suggests this is a regular thing, happening at least in 2017 and 2020.

Who knows whether it's shenanigans but, from the 2020 article linked below, the company claimed, "Pentamaster said the issue is intended to reward shareholders and enable them to have greater participation in the equity of the group while maintaining their percentage of equity interest.

In addition, the exercise may possibly be able to encourage trading liquidity and marketability of its shares on Bursa Malaysia, the group said in a stock exchange filing today."

https://www.theedgemarkets.com/article/pentamaster-proposes-onefortwo-bonus-issue-1

jamei305

If you're not sure what's going on and how it affects overseas investors, perhaps question whether investing in the individual shares of an HK-listed Malaysian small cap is really something you have to do in order to get the returns you're after.

Thrugelmir

Foreign ownership is sometimes restricted to a % of the issued share capital. Nothing unusual in this. 

benbay001

Thanks all.

It makes sense that perhaps the foreign ownership % is creeping towards the limit and this is a way to reduce that without negatively effecting shareholders.

maxsteam

benbay001 said:

Is the intention to dilute overseas shareholders?

Anyone got any idea what advantage this would have for the company?

No. It's not a plan to dilute overseas shareholders. There will be various rules about who is allowed to hold shares in the company and the bonus issue may break the rules for certain overseas shareholders. If this happens, instead of breaking the rules, those shareholders will get cash instead. It's unlikely that you will be an "excluded shareholder" unless your plan was to take a significant stake in the company.

The bonus issue will not effect the market capitalisation of the company but it will change the value of the shares to, presumably, what someone feels is a more manageable number. Within the particulars of the issue, a better reason may be provided. It's not something I like but it provides work for many professionals who would otherwise be playing with their executive toys.

Of greater concern to me would be that this is a small, thinly traded overseas company. In your shoes I would be looking to tweak the screen to exclude such companies.

benbay001

I thought id provide an update as i worked it all out yesterday.
Hong Kong stock exchange only allows shares to be purchased in "lots", which as i understand are set by the company.
The lot size for Pentamaster is currently 4000 shares, meaning the minimum is £600 of shares.
By reducing the lot size to 2000 shares and increasing the number of shares in issue the company will become significantly more liquid.