Split Path

June 20, 2007 (LBO) – Two Colombo-listed firms have opted to split their shares after a new law forced the companies to withdraw an earlier decision to give what was called a 'bonus share' to shareholders. One firm, Seylan Merchant, also abandoned a dividend payment after a solvency test specified in the new company law. A bonus share has the same effect as a share split, by increasing the number of shares in issue by dividing the shareholder equity into a greater number of units, but the change in nomenclature left many investors and firms confused.

ACL Cables said it was splitting its 29.9 million shares to 59.8 million under the provisions of the new company law.

Amana Takaful, an Islamic insurer said it was splitting it 25 million shares into 50 million shares.

More than a dozen companies which declared a 'bonus share' but had not completed the legal process an old company law became ineffective at the end of May, had to withdraw the announcements.

One firm, said it would not proceed with the splitting, while another listed firm declared a stock dividend.

However a stock dividend is different from a bonus share, as a declaration of a dividend creates a liability in the books o