The Bulgarian „Split Syndrome“

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Recently, the practice of increasing company capital using own funds, or the so called „split“, has become very popular with companies on the Bulgarian Stock Exchange.

What exactly is a „split“? The capital increase using reserves or transforming profit is a purely technical operation, in which the number of shares is increased without changing the company's structure or ownership.

The change only affects the „own capital balance“ without changing the overall sum. The difference is in the number of shares into which the core capital is allocated (the number of shares can also be increased by reducing the nominal value, which is also referred to as „split“).
This means that every shareholder will receive a number of shares for free. Of course, these procedures should not affect the stock price.
Such an operation should not affect the price on the stock exchange since no one wins anything in it. Some people say that the procedure improves liquidity. Well, what is the difference between selling 100 shares at 50 leva and selling 1000 shares at 5 leva?

We can only speak of intensifying the trade on the position in some cases, such as with Holding Patishta - its shares cost more than 20,000 leva and are too expensive for small investors.

But what happens in Bulgaria?

Over the past several months the words „capital increase using own funds“ were enough to skyrocket the price on some positions (the only case in which the price declined was with Bulgarian River Shipping AD, but that was due to the transfer of a 25% stake in its capital at an auction on the BSE).

In the table below you can see how the price of some stocks changed in different periods of trade (prices are corrected to reflect changes in capital, dividends etc.).

Date Before Split Is AnnouncedFinal DatePeakNew Shares FloatedDifference (Column 1 -4)
Stara Planina Hold4,615,719,066,8548,59%
Eltos3,817,8620,3917,31354,33%
Energoremont Holding44,8652,2363,8849,259,79%
Bulgarian River Shipping9,48,0213,239,915,43%
Metizi3,673,975,994,5523,98%
Elhim Iskra2,153,628,327,15232,56%
Emka11,5414,2218,3714,6526,95%


* Source: Bulgrian Stock Exchange. Prices are in BGN.


In the first column you see the price on the day before the approval of the split has been officialy announced. Often there has been a movement on the position even before any official information has been released. Recently, the Financial Supervision Commission announced that it is investigating some operations with the stock of Stara Planina Hold.

In column 2 you see the stock price on the final date for trade entitling the holder to receiving free new shares. It is interesting that trade peaks in the days following this date and before investors have received the new shares in their portfolio. This is due to the fact that some institutional investors are taking advantage of the corrected price shown above (when the stock no longer entitles holder to new shares), as well as the demand for the shares on the market, and artificially lift the price.

Then, on the day the new shares are to be floated, the price drops.

Of course, the advance on some positions may be attributed to the good performance and financial reports posted by the company (Sparky Eltos), but in the majority of cases the real reason is the split

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