Share splitting legislation comes into force
Legislation allowing Swiss companies to lower minimum nominal share values has been introduced. Previously a share had to have a value of at least SFr10 ($6) but the new law allows stocks to be valued at just SFr1.
The legislation brings Switzerland into line with a practice that has long been established in the United States and is increasing in other parts of Europe. It is aimed at improving market liquidity and broadening a company’s shareholder base.
Most big companies are planning to change their capital structure in the next few months. The Basel-based pharmaceuticals giant, Roche, is planning to issue 100 new shares for each one now in existence. Novartis has suggested a share split of 40:1 and Nestlé, Adecco, Julius Baer and Kudelski have all proposed 10:1 splits.
Analysts say share splitting makes inexperienced investors nervous because they feel value of their investment has changed, when in fact it simply increases the volume of shares on the market, lowering the face value of each one.
“It’s a purely mathematical way of recording company reserves,” says Bank Leu trader, Eleanor Charrez.
“In itself, share splitting doesn’t make a company or investor any richer or poorer,” adds Barclays stockbroker, Justin Urquart-Stuart. “What it does do is make the stock more liquid and more easy to trade. Switzerland has realised that to develop its market it has to encourage more liquidity and share splitting is a good way of going about it.”
The move to single franc shares will also make it much easier for ordinary people to become shareholders.
“In the United States, around 60 per cent of people own shares and in Switzerland it’s only around 20 per cent,” says Charrez. “Making shares less heavy by splitting them will change attitudes.”
Share splitting should also draw in more foreign investment.
“There’s a great interest in Swiss companies but the size of the individual stock has put people off,” says Urquart-Stuart.
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