Trend of stock splits gaining momentum in Pakistan?

The trend of stock splits is gaining momentum in Pakistan's financial markets. In the past two weeks, three companies—Arif Habib Corporation Limited (AHCL), Lucky Cement Limited (LUCK), and Air Link Communication Limited (AIRLINK)—have announced plans to split their shares. This surge is notable, considering that only three companies had undertaken stock splits in the past decade.

Arif Habib Corporation Limited has proposed reducing the face value of its shares from Rs. 10 to Re. 1, restructuring its 421.69 million shares into 4.21 billion shares. Additionally, LUCK and AIRLINK have announced splits of 1:5.

This move aims to enhance market liquidity, make shares more accessible to a broader range of investors, and lead to better price discovery. Importantly, there are no tax implications when a company announces stock splits, for both the investors and the company.

In the case of AIRLINK, the total number of ordinary shares will increase from 395.27 million to 1.98 billion.

Which Other Companies May Announce Stock Splits?

Among the many companies that may announce stock splits are Sazgar Engineering, INDU Motors, Millat Tractors, Colgate, Abbott, and others.

Fundamentally, What Is a Stock Split?

A stock split is a strategic corporate decision that involves converting one share of higher value into a specific number of shares of lower value in a predetermined ratio. A stock split declaration has no effect on the value of what shareholders own, with the price of the stock decreasing proportionately to the increase in the number of shares.

Detailed Guidelines of SECP Encouraging More Firms to Announce Stock Splits

In Pakistan, stock splits are permissible under Section 85(1)(c) of the Companies Act, 2017, allowing companies to subdivide shares through a special resolution. Historically, only a few companies have utilized this strategy, but the Securities and Exchange Commission of Pakistan (SECP) has recently approved comprehensive guidelines to encourage more firms to consider stock splits.

These guidelines provide detailed insights into the legal procedures, tax implications, and accounting treatments associated with stock splits. Notably, stock splits do not trigger immediate tax liabilities, as no ownership transfer occurs. These guidelines, issued in December 2024, aim to promote stock splits as a viable financial strategy, particularly for companies with high share prices.