What the subscription price means for you as a shareholder
For existing shareholders, the subscription price determines whether it is financially attractive to take part in the issue. Taking part can lower your average acquisition cost, while not taking part can lead to dilution.
For new investors, the subscription price works as an entry price. The better it reflects the company's actual value and potential, the more balanced the investment decision becomes.
How the subscription price is normally set
The subscription price is determined through an overall assessment of the company's situation and market conditions.
- The company's valuation and capital needs
- Market conditions and investor interest
- Level of risk and future growth potential
- Type of issue and target group
- The board's decision, often with the support of advisers
When these factors are weighed together, a price is set that should be attractive enough for investors while remaining reasonable for the company's long-term owners.
When the subscription price matters most
Worth bearing in mind
The subscription price becomes especially important when the company needs to balance its capital needs against the owners' interests. A low price can make the issue easier to complete but often leads to greater dilution, while a high price can protect the ownership but reduce demand.
The choice of subscription price also signals how the company values itself. The market interprets the price in relation to risk, prospects and current market conditions.
Frequently asked questions
What is the difference between the subscription price and the share price?
The subscription price is the price in the issue, while the share price refers to the market price when the shares are traded.
Can the subscription price be lower than the market price?
Yes, this is common to increase interest and make sure the issue is fully subscribed.
Who decides the subscription price?
The board normally decides the subscription price, often under an authorisation from the general meeting.
Does the subscription price affect dilution?
Yes, a lower price usually means greater dilution if more shares are issued.
Can the subscription price change after the issue has been announced?
As a rule it is fixed, but it can be adjusted if the terms of the issue change before it starts.