Ann: Trading Halt, page-26

For those who think a CR is a good thing :

The problem with capital raisings Issuing new shares seems like a ‘no-brainer’ if a company needs more cash.

But investors often hate them, and here’s why.

If Company X has 100 shares outstanding, owning 10 shares gives an investor a 10% ownership of the company and an entitlement to 10% of the company’s earnings.

But if Company X decides it needs more capital and issues 100 additional shares, that investor’s ownership just fell to 5% of the total company with an entitlement to 5% of the earnings without that investor selling anything.

In this way, it can represent wealth destruction for shareholders.

Now if a company is really in trouble, investors might be sympathetic. Better to have your ownership reduced in a company than see it go bankrupt, after all.

But don’t get fooled by any glossy brochures or sweet talk from a CEO.

Capital raisings usually aren’t good for shareholders, and (in my opinion) you should be wary if a company you own joins the party.