A bonus issue is when a Nigerian company allocates additional shares to existing shareholders at no cost. This article explains how bonus issues work, how shares are credited, and what they mean for your holding.
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A bonus issue (also called a capitalisation issue or scrip issue) is when a listed Nigerian company issues additional free shares to all existing registered shareholders in proportion to their current holding. The new shares are funded by converting the company's accumulated reserves into share capital — an internal accounting entry. No cash leaves the company, and shareholders pay nothing. Bonus issues are different from dividends: you receive more shares, not cash.
Bonus shares are issued in a specific ratio — for example, "1 for 5" means for every five shares you hold, you receive one additional share. If you hold 1,000 shares and a 1-for-5 bonus is declared, you receive 200 new shares, giving you 1,200 total. The ratio is applied to your registered holding on the bonus record date. Shares not registered in your CSCS account before the record date may not attract the bonus.
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A bonus issue increases the number of shares you hold but does not immediately increase the total value of your investment. Because the total number of shares in the company increases proportionally, the market price per share typically adjusts downward after the issue. A 1-for-5 bonus increases total shares by 20%, and the share price typically decreases by approximately 20% — leaving the total market value of your holding roughly unchanged. Over time, if the company continues to grow and the price recovers, owning more shares in a growing company may be advantageous — but this is not guaranteed.
You do not need to take any action to receive bonus shares if your shares are registered directly in your CSCS account. The company's registrar processes the bonus allotment and instructs the CSCS to credit the new shares to each eligible registered holder's account. This typically takes a few weeks after the company's board approves the bonus. You will see the additional shares appear in your CSCS account once credited.
Tax treatment of bonus shares depends on your individual circumstances and current Nigerian tax rules. Rules can change. Seek advice from a qualified tax adviser.
At the point of receipt, bonus shares typically do not involve a cash payment to you and are generally not treated as taxable income in the same way as dividends under current Nigerian practice. However, when you eventually sell bonus shares, capital gains considerations may arise depending on your circumstances. The tax treatment is a specialist area — always seek advice from a qualified tax adviser regarding your specific situation.
A cash dividend: distributes company profits to shareholders in Naira, reduces the company's retained earnings, is subject to 10% WHT at source. A bonus issue: converts retained earnings into additional share capital, distributes shares rather than cash, does not involve a WHT deduction. From a shareholder perspective, a cash dividend puts money in your bank account immediately; a bonus issue adds shares to your CSCS account. The economic effect on your overall position depends on what the company does with the capital retained and how the share price behaves after the issue.
Once the bonus shares are credited to your CSCS account and the post-bonus share listing is effective on the NGX, you can sell them through your broker like any other shares. Check with your broker for the specific dates when bonus shares become tradeable.
No. Bonus issues are at the discretion of the company's board and depend on the level of accumulated reserves available for capitalisation. Some companies declare them periodically; others rarely or never do.
The nominee holder receives the bonus shares on behalf of all clients. Whether and how those shares are allocated to individual clients depends on the platform's terms and procedures. Confirm with your platform how they handle bonus issues for nominee-held shares.
Important disclaimer
This article is for general information and educational purposes only. It does not constitute financial advice, investment advice, or tax advice. Bonus issue terms vary by company. Tax treatment depends on individual circumstances. The value of investments can fall as well as rise. You should seek independent regulated financial and tax advice before making any investment decision. Shares Saver does not provide financial or tax advice.
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