Editor’s note: This is general educational information about how bonus issues work for companies quoted on the NZX Main Board. It is not financial advice and does not describe any particular company or security. Everything below is drawn from the official rulebooks and guidance listed at the end.
A shareholder who held a hundred shares on Monday can hold a hundred and fifty on Tuesday without paying anything, without any cash leaving the company, and without owning a larger slice of it than before. That is a bonus issue. In New Zealand the mechanism sits inside a specific rulebook, the NZX Listing Rules, and the rulebook treats it very differently from a dividend. Reading the two sets of provisions side by side is the fastest way to understand why one event moves money and the other moves only the denominator.
What the NZX rules actually permit
Section 4 of the NZX Listing Rules governs changes to capital. Rule 4.1.1 sets the default position: an issuer must only issue Equity Securities with approval by Ordinary Resolution. Rule 4.1.2 then lists the exceptions, and the first of them is a pro-rata Rights issue, bonus issue or Share Purchase Plan made in accordance with Rule 4.3 and, where applicable, Rule 4.4. A bonus issue therefore does not need a shareholder vote, and the reason is embedded in the definition of the exception. Because every holder receives new securities in the same ratio, the proportionate voting and distribution rights of each holder are unaffected, subject only to rounding. The rulebook repeats that formulation in the provisions dealing with pro-rata offers, and it is the test that separates a bonus issue from a placement, where the issuer sells new stock to selected investors and existing holders are diluted.
The version of the Listing Rules currently in force is numbered 1.9 and is dated 31 January 2025. It runs to 115 pages, and the sections that matter for a bonus issue are short. What the issuer must do is announce. Rule 3.13.1 requires an issuer that issues quoted financial products to release the details through MAP, the market announcement platform, within one Business Day after the issue. The prescribed detail list is long and specific: the class of financial product and its ISIN, the number of financial products issued, the nominal value if any and the issue price, whether payment was in cash, the percentage of the total class issued, the reason for the issue, the specific authority relied on, and the total number of financial products of the class in existence afterwards excluding Treasury Stock.
That last item is the new denominator, published by the company itself, and it is the number that every per-share ratio has to be recalculated against.
Record Date, Ex Date and why the price moves
Two defined terms control the timing. Record Date means the time fixed by an issuer for determining which holders an entitlement applies to. Ex Date means the first Business Day before the Record Date for that benefit, unless NZX determines otherwise. A Head Security is defined as the financial product which, immediately before the Ex Date, confers entitlement to the benefit on its holder.
Those definitions explain the price adjustment that surprises people. On and after the Ex Date, a share bought on market no longer carries the right to the bonus securities, because the buyer will not be on the register at the Record Date. The market therefore prices the share without the entitlement, and the quoted price steps down by the proportion the entitlement represents. Nothing has been taken from anyone. The entitlement simply detaches from the share and attaches to the person who held it before the Ex Date.
The rules apply the same logic to derivatives over the shares. Rule 6.5.3 provides that if there is a bonus issue to holders of the underlying financial products, the number of financial products over which an option is exercisable may be increased to include those the option holder would have received had the option been exercised before the Record Date for the issue. Rule 6.5.4 does the equivalent for a consolidation or subdivision, adjusting the number of products and amending the exercise price in inverse proportion. The drafting is an admission in rulebook language that a bonus issue changes units of account rather than value, and that anyone holding a claim over those units has to be moved along with them.
The dividend comparison, in tax terms
The contrast with a dividend is sharpest in the tax rules rather than the listing rules. Inland Revenue’s description of resident withholding tax is blunt: the payer of interest or dividends withholds tax before making the payment, and dividends and unit trust distributions are all taxed at an RWT rate of 33 per cent. Payers report details of all investment income to Inland Revenue on a regular basis, and that information appears in the recipient’s income profile in myIR, classified by type and by source. Where an interest recipient has not supplied an IRD number, the non-declaration rate applies, which has been 45 per cent since 1 April 2020.
A cash dividend is an event with a payer, a payee, an amount and a deduction. A bonus issue has none of those. It has an issuer, a ratio and a record date. The Listing Rules reinforce the point from the other direction. Rule 3.14.1 requires an issuer to release through MAP, at least five Business Days before the Record Date, details of a proposal to pay or distribute a benefit on quoted financial products, and Rule 3.14.4 requires directors who recommend or pay dividends other than in accordance with the issuer’s most recently published dividend policy to fully explain the reasons for the divergence in that same notice. The rulebook expects a dividend to be measured against a stated policy. It expects a bonus issue only to be announced accurately and promptly.
Analysis: what the announcement establishes and what it does not
A bonus issue announcement made under Rule 3.13.1 is a strong document about mechanics and a weak one about value. It establishes, on the issuer’s own authority, the ratio, the class, the record date, the reason and the post-issue share count. It establishes that no shareholder approval was required, which in turn establishes that the offer was pro-rata and that proportionate rights were preserved. Those are facts a reader can rely on without further work.
What it does not establish is anything about the business. No cash was raised. NZX’s Capital Raising Guidance Note deals at length with structures that do raise cash, placements priced by bookbuild, traditional renounceable rights issues, accelerated renounceable entitlement offers, accelerated non-renounceable entitlement offers and share purchase plans, and its central theme is dilution: who gets the right to subscribe for new capital, and who is diluted if they do not. A bonus issue is the case where that question does not arise, because nobody subscribes for anything. Reading a bonus issue as a signal about earnings quality asks the announcement to carry information it was never drafted to carry.
The comparison a careful reader should make is between the pre-issue and post-issue share counts in the Rule 3.13.1 notice, and then between the next reported earnings per share figure and the previous one. Earnings per share will fall mechanically if profit is flat, because the denominator has grown. Where a company has options on issue, Rule 6.5.3 means the option pool grows too, so the fully diluted count moves as well. The other thing worth checking is what the company said in the announcement about the reason for the issue. Rule 3.13.1 makes that a required field, and a reason given in the issuer’s own words is more useful than any inference drawn from the ratio.
