Benefits of Reduction in Share Capital

Star · 10-02-2009, 04:56 PM

Dear Members,

What would the benefits of reduction in share capital for company / its investors ?

I think it would not be unethical to mention the name of Silk Bank who has planned to to do so and announce publically the decision of board of directors today.

Regards,

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awaisaftab · 10-02-2009, 05:00 PM

A company can reduce its share capital to improve earning per share.

Star · 10-02-2009, 05:12 PM

Would it effect the market value at stock exchange???

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awaisaftab · 10-02-2009, 05:33 PM

Market value is not only effected by only one factor. There are numerous economic factors that effect the market price of share of a company.

kamranACA · 10-02-2009, 08:32 PM

In a genuine market reduction in shares should afffect market value since the net assets will now be represented by a lesser number of shares.

As Aftab said there are other factors as well in determination of market values. In markets, like we have, there is so much which affects the market sentiments.

Regards,

Star · 10-02-2009, 08:50 PM

Dears,

If no major impact on market value, then shareholders have to suffer losses becasue the number of shares would be reduced and with almost market value.

In case of silk bank 80% shares will be reduced. For example, a person holding 100 share will have 20 shares only after reduction. He has to sacrifice 80% value of its investment.

Its very bad for shareholder, if it is like above and market value remains almost same.

Regards,

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kamranACA · 10-03-2009, 04:47 AM

Dear,

The reductions, reconstructions, splits and amalgamations of shares always leave roughly an equal corresponding impact on market values. Market capitalization typically remains same. You must know that reduction is made normally against accumulated losses which always reduce equity (book value) in financial statements. So normally there is no value loss either in terms of book values (net equity basis) as well as in terms of market capitalization.

However, in ingenuine markets like ours, there can arise other factors which may affect the market value which create a situation where one cannot exactly judge the impact of reduction in share capital on market values.

Regards,

Kamran.