Was Reliance Power's issuing bonus shares (3 for every 5 held) an example of what is called 'stock split'?

Question

What I want to know is that were 5 shares split and converted into 8 shares (so that market capitalization of the company remained the same, and no extra dilution was done or required), OR the company's promoters gave away a small part of their own share in the company to investors for free (that is 'no stock split occured').

I was reading about 'stock split' here on Wikipedia but couldn't quite understand what Reliance Power did.

http://en.wikipedia.org/wiki/Stock_split

You may also want to read this news story for a bit of background

http://www.hindu.com/2008/02/25/stories/2008022557180100.htm

Answer 1

A corporate action in which a company's existing shares are divided into multiple shares. Although the number of shares outstanding increases by a specific multiple, the total rupee value of the shares remains the same compared to pre-split amounts, because no real value has been added as a result of the split.

One reason as to why stock splits are performed is that a company's share price has grown so high that to many investors, the shares are too expensive to buy in round lots.

For example, if a XYZ Corp.'s shares were worth 1,000 each, investors would need to purchase 100,000 in order to own 100 shares. If each share was worth $10, investors would only need to pay 1,000 to own 100 shares.

www.winthemarkets.com

Answer 2

What you had was a bonus share being issued out...generally a stock split simply means that you double the amount of stock that you had, but the price is worth half of what it is.  For example:  you have one share of Coke at $50 a share.  You now have two shares of coke at $25 a share.  You still have the value of $50, but now you have twice as many shares...Good luck.

Answer 3

Reliance power didn't do the share split. It did issue the bonus shares. Companies instead of going to the market with fresh issues issue bonus shares. This benefit applies to the promoters too.

Answer 4

RPower issue was a bonus issue at the specified ratio. It was not a stock split. In Bonus issue, the Face value of a stock remains the same. Since the dividend is declared as % of Face value, 100% dividend on a share having Rs.10 as face value will be equal to Rs.10 as dividend per share. Whereas in case of a stock split, the Face value is also altered as per the ratio. Hence the actual dividend also will be less even though 100% dividend is announced. Suggest, you can refer, http://www.sharetips4u.info for more general glossary of share market terms.