What it means for you as a shareholder
In a new share issue, existing shareholders may be offered the chance to subscribe for new shares, often with a pre-emption right. If you choose not to take part, your ownership stake may be diluted as more shares are issued to other investors.
Keeping track of the terms, such as the subscription price and the subscription period, helps you make a well-founded decision about whether or not to take part in the issue.
How a new share issue usually works
When a company carries out a new share issue, there are several defined steps and terms that govern the process.
- A pre-emption right may be offered to existing shareholders
- The subscription price is set before the issue starts
- Subscription takes place during a set period
- Payment and subscription are formally registered
- The new shares bring capital into the company
When these parts are clear, it becomes easier to assess how the new share issue affects both the company and you as an investor.
When a new share issue becomes relevant
Worth bearing in mind
New share issues become relevant when the company needs more capital than it can raise through its ordinary operations or through loans. This can involve expansion, product development or covering a cash shortfall when results are weaker.
Before a new share issue, it is important to understand why the company wants to raise money, since the purpose affects both the terms and how the issue may affect your role as a shareholder.
Frequently asked questions
Why do companies carry out a new share issue?
Common reasons are to finance expansion, strengthen the company's finances or obtain resources for new projects.
What does dilution mean?
Dilution means that your percentage ownership stake decreases when more shares are created, even if you keep the same number of shares as before.
Do I have to take part in a new share issue?
No. But if you do not take part, your ownership stake often decreases, depending on how large the issue is.
How does a rights issue work?
Existing owners get to subscribe first, often with subscription rights that entitle them to new shares during a set period.
Are new share issues common in unlisted companies?
Yes. It is a common way for growth companies to raise capital before a possible stock exchange listing or expansion.