Hi friends, I am currently stuck in a situation where the promoter of a listed company doesnt wish to dilute his holdings but wants to raise equity. Can u suggest ways of doing this… cash on B/S is almost negligible… Any structured instrument that you think can be devised to do it? Your response will be of great help… Thanks
CFA_Ib not sure if I understood you right… are you saying that promoter do not want to “participate” in the equity enhancement and also do not want to “dilute” his existing stake? That means a simple “rights issue” is out of question… however, you can structure a transaction wherein promoters receive a “promoters premium” from new investor in the form of “free shares”. e.g. Existing shares 100 Promoters stake 30 Other existing investors 70 Let’s assume MV = $ 1/share Post transaction structure ( issue of 100 shares at $1) Total shares 200 Promoters premium 30 ( free shares) Promoters shares 30 old investors 70 new investors 70 In essence, new investors pay 100 for 70 shares at 1.42 / share . Ofcourse, new investors would be willing to pay the premium only if they see value in entering the company and it is otherwise not easily accessible (closely held, thin trading, etc.). Also, need to check the rights of existing shareholders… whether this kind of structure is allowed or not?
The company can obtain shareholders’ approval for ‘warrant issues’ to the promoters.