Guide: What is a new share issue and a share issue?

In this article you will learn, among other things, about the concepts of a new share issue (nyemission) and a share issue (emission), both of which are central concepts in finance and investing. We also cover related concepts such as bonus issues, directed share issues and non-cash issues.

What is a share issue?

A share issue is an umbrella term for when a company issues new shares or other securities, such as convertibles and warrants. The purpose of a share issue is usually to raise new capital to finance investments or growth, or to strengthen the balance sheet. Some issues, such as bonus issues, however, redistribute existing capital without bringing in new funds.

What types of share issues are there?

The most common types of share issues are:

• New share issue: The company issues new shares that are bought by investors, which brings in new capital. This is the most common type of issue when a company needs to strengthen its finances or finance expansion.
• Directed share issue: Shares are issued to a specific group of investors, for example strategic partners or institutional investors.
• Bonus issue: The company redistributes existing capital by transferring funds from retained earnings or the reserve fund to the share capital. Shares are distributed to existing shareholders free of charge.

Other types of share issues include:

• Non-cash issue (apportemission): Payment for the shares is made in the form of assets instead of money, for example property or intellectual property rights.
• Set-off issue (kvittningsemission): The company issues shares in exchange for debts being written off, which reduces the company's indebtedness.

What is a new share issue?

A new share issue means that a company issues new shares and sells them to bring in capital. In a rights issue, existing shareholders are offered priority to buy the new shares, which protects their ownership stake from being diluted. In some cases the shares can also be offered to new investors through a directed share issue, where shares are sold to, for example, institutional investors or strategic partners.

The capital a company brings in through a new share issue is usually used to:

• Finance new projects and product development.
• Expand into new markets and strengthen its market position.
• Pay off debts and strengthen the balance sheet, depending on the company's needs and strategy.

Advantages of a new share issue

New share issues offer a company several important advantages:

1. Access to capital for growth: The capital raised can be used to scale up the business, develop new products and expand into new markets.
2. Improved liquidity: The new capital strengthens the company's liquidity and makes it possible to handle running costs and future investments.
3. Reduced indebtedness: By using part of the capital to pay off debts, the company can reduce its financial risk and improve its long-term stability.

Disadvantages of a new share issue

There are also challenges and potential disadvantages to carrying out a new share issue:

1. Dilution of ownership stakes: Existing shareholders who do not take part in the new share issue end up with a smaller ownership stake, which can affect their influence in the company.
2. High costs: New share issues are often expensive because of the need for legal advice, preparing a prospectus, marketing and other administrative costs.
3. Risk of a negative market reaction: The share price can be negatively affected if the market perceives the new share issue as a sign of financial problems or uncertainty, especially if the issue takes place under pressured circumstances.

How does a new share issue work?

A new share issue is a process in which a company issues new shares to bring in capital. Here is a clear overview of the steps usually included in the process:

1. Proposal for a new share issue

The process begins with the company's board of directors drawing up a proposal for a new share issue. The proposal sets out:

• The purpose of the issue, for example financing expansion or repaying debt.
• The terms that apply to the issue, such as the price per share, the number of shares to be issued and the subscription period.

The proposal must be approved by the general meeting, where the shareholders vote on the decision. In some cases the board may already have received an authorisation from the general meeting, which gives it the right to carry out the issue without further approval.

2. Subscription for shares

Once the new share issue has been approved, the company opens subscription for the new shares. Interested parties can register to buy shares on the set terms.

• If preferential rights apply: Existing shareholders get priority to subscribe for new shares in proportion to their current holding.
• If the issue is directed: Only a specific group of investors, such as institutional investors or strategic partners, can subscribe for shares.

Those who subscribe and pay for the shares receive ownership stakes in the company. If more interested parties register than there are shares to subscribe for, this is called oversubscription, and allocation takes place according to the rules set out in the terms of the issue.

3. Registration with Bolagsverket

Once subscription and payment are complete, the new share issue must be registered with Bolagsverket (the Swedish Companies Registration Office). This registration is necessary for:

• The new shares to become valid.
• The capital increase to show in the company's balance sheet.

After registration, the new shares can begin to be traded (if the company is listed on a stock exchange) or be included in the share register (if the company is unlisted).

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What does it mean that the shares are diluted?

Dilution of shares occurs when a company carries out a new share issue and issues new shares, which increases the total number of shares in the company. This means that each existing share represents a smaller percentage of the company's total ownership structure after the issue, if existing shareholders do not subscribe for the new shares.

Example: If you own 100% of a company with 100 shares, and the company issues another 100 shares that you do not buy, your ownership stake will fall to 50%, as the total number of shares is now 200.

Other share issues

The other share issues we will describe in this article are directed share issues, bonus issues, non-cash issues and set-off issues. It is worth pointing out that all of these issues are “new share issues”, which is a broad term for capital injections where a company issues new shares.

What is a directed share issue?

A directed share issue is a type of new share issue in which a company offers new shares to a specific group of investors, for example strategic partners, institutional investors or experts in a particular industry. Unlike a rights issue, where all existing shareholders have the right to take part, in a directed share issue the company itself chooses who may take part. This means directed share issues are often used to attract specific investors who can contribute more than just capital, for example industry knowledge or strategic contacts.

Advantages of a directed share issue

Directed share issues have several advantages that make them attractive to companies in certain situations:

1. Fast and efficient capital raising: Since only a limited number of investors are involved, the process can be carried out faster and with less administrative complexity than a broader new share issue.
2. Strategic partnerships: By offering shares to specific investors, such as industry experts or companies with similar goals, the company can create valuable collaborations that contribute to its development and growth.
3. Flexibility: The company has greater control over who becomes a new shareholder, which can be important for ensuring a long-term strategy and a stable ownership structure.

Disadvantages of a directed share issue

However, there are also challenges and disadvantages with directed share issues:

1. Dilution of ownership stakes: Existing shareholders who are not given the opportunity to take part in the issue may see their ownership stakes shrink, which can create dissatisfaction.
2. Risk of lost trust: If shareholders perceive that the issue favours a specific group at their expense, it can damage trust in the company's management and affect the share's value negatively.
3. Regulatory requirements: Although directed share issues can be faster, they require careful legal and financial preparation to ensure that the process follows the applicable rules and that existing shareholders are treated fairly.

Directed share issues are a useful tool for companies that need capital quickly or want to bring in strategic investors. Despite their advantages, such as efficiency and the opportunity for partnerships, the company must carefully consider how the issue affects existing shareholders to avoid dissatisfaction and lost trust.

What is a bonus issue?

A bonus issue means that a company converts part of its existing capital, such as retained earnings or reserve funds, into share capital. This happens without bringing in new money from external investors. In a bonus issue, new shares are issued to existing shareholders entirely free of charge. Alternatively, the bonus issue can increase the nominal value of shares already issued, depending on how the issue is structured.

The purpose of a bonus issue is not to increase the company's cash, but to redistribute capital within the balance sheet. It strengthens the company's share capital, which can signal financial stability and increase the market's confidence in the company.

Advantages of a bonus issue

1. Strengthens the balance sheet: By increasing its share capital, the company can be perceived as more financially stable, which can make future capital raising or borrowing easier.
2. No cost for shareholders: Existing shareholders receive new shares without having to pay anything, and their ownership stake in the company is not affected.
3. Increases market confidence: Larger share capital can improve the company's credibility with investors, suppliers and other stakeholders.

Disadvantages of a bonus issue

1. No new liquidity: Since no new money is brought into the company, the bonus issue cannot be used to finance new projects or investments.
2. Dilution of share value: If more shares are issued, the value per share (measured as book value) falls. This can affect the share's market value, even though the owner's percentage stake in the company remains unchanged.

A bonus issue is an effective way for companies to strengthen their share capital by restructuring existing capital, without burdening existing shareholders. Although it does not bring new money into the company, it can create advantages such as an improved balance sheet and increased confidence in the market. At the same time, the company should be aware of potential negative effects, such as dilution of the share value, and assess whether a bonus issue is the right strategy for its specific needs.

What is a non-cash issue?

A non-cash issue (apportemission) is a method in which a company pays for the acquisition of assets, for example another company, intellectual property rights or equipment, with shares instead of money. This means that those who contribute the assets to the company become shareholders in the acquiring company.

A common example is when a larger company acquires a smaller company. If a large technology company wants to buy a smaller company that has developed a strategically important product, it can use a non-cash issue to pay by offering shares in its own company instead of cash.

Advantages of a non-cash issue

1. Preserves liquidity: The company can carry out acquisitions without using its cash, which is particularly advantageous if cash flow needs to be prioritised for other investments or day-to-day operations.
2. Strategic assets without cash payment: By using shares as payment, the company can acquire important assets, such as technology, intellectual property rights or entire companies, and strengthen its position in the market.
3. Flexibility in acquisition strategy: A non-cash issue makes acquisitions possible even when the company does not have sufficient cash, which can create opportunities for strategic growth.

Disadvantages of a non-cash issue

1. Dilution of ownership stakes: When new shares are issued, existing shareholders' percentage ownership in the company falls. This can lead to dissatisfaction among shareholders, especially if the acquisition is not perceived as creating value.
2. Uncertainty about the share price: The effect on the share price depends on the market's assessment of the acquisition. If the acquisition is seen as strategic and valuable, the share price can strengthen. If, on the other hand, it is considered less favourable, it can lead to a fall in the price.
3. Complexity and scrutiny: A non-cash issue requires the assets contributed to be valued correctly and approved by auditors and, in some cases, by the general meeting. This can be a time-consuming and costly process.

A non-cash issue is a powerful tool for companies that want to carry out acquisitions without using cash. It makes strategic acquisitions possible and preserves liquidity, which can be decisive for the company's growth and long-term goals. At the same time, the company must carefully consider the effect on shareholders and the share price, and ensure that the assets contributed really create value for the company.

What is a set-off issue?

A set-off issue (kvittningsemission) is a form of share issue in which a company issues new shares to its creditors, that is, parties to whom the company owes debts. By offering shares instead of cash payment, debts are converted into equity. This reduces the company's indebtedness and strengthens the balance sheet, which can contribute to a more stable financial position.

Advantages of a set-off issue

1. Preserved liquidity: Since the company does not need to use cash to pay the debts, cash can instead be used for the business's day-to-day needs or growth initiatives.
2. Reduced indebtedness: Set-off issues reduce the company's debt burden, which can improve its creditworthiness and create better conditions for future financing.
3. Strengthened balance sheet: By increasing equity and reducing debts, the company can appear more stable and financially sustainable.

Disadvantages of a set-off issue

1. Dilution of ownership stakes: Existing shareholders end up with a smaller percentage stake in the company when new shares are issued. This can create dissatisfaction among shareholders.
2. Signal of financial problems: If the set-off issue is carried out as an emergency solution, the market may interpret it as a sign of financial difficulties. This can push the share price down.
3. Dependence on creditors' acceptance: A set-off issue requires the creditors to agree to exchange their claims for shares. If they consider the shares not attractive enough, the issue may fail.

A set-off issue is an effective tool for reducing indebtedness and strengthening the balance sheet, especially for companies that need to preserve their liquidity. At the same time, it involves a risk of diluting existing shareholders' stakes and can affect market confidence negatively if the issue is seen as an emergency solution. Companies should therefore carefully consider the timing and communication around a set-off issue to maximise its advantages and minimise potential negative effects.

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