# Raising Equity without dilution?

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

It sounds like you are working with an idiot, not to mention you said “promoter” and not “ceo/cfo” If he is that desperate for cash then dillution should be the least of his worries.

Converts will minimize dillution, however, it doesn’t seem as though this company would be able to raise debt. If you want to minimize dillution, or to avoid it, raise capital in another part of the capital structure…otherwise if you are selling an equity stake, dillution is not avoidable

Stating the obvious, if he’s only worried about not losing his ownership percentage he could always take a proportional stake in the new offering and therefore just dilute others. However, i doubt he would have the cash to keep his proportional share by the sounds of everyone’s observations.

How about convertable perfers? Do some math, given a correct conversion ration, convertable perfer can be sometimes anti-dulitive. However, I can never know for sure if perfer counts as debt or equity.

preferred stock counts as equity, so that doesn’t matter.

wessun Wrote: ------------------------------------------------------- > preferred stock counts as equity, so that doesn’t > matter. Well, if preferred counts as equity. Issuing convertable perferred (anti-duliative) can the a solution to this situation.

convertable pref anti dilutive? explain that

Thanks for testing my LI memory. Let’s say a compay makes \$200, need to pay \$50 in perferred dividend, has 100 shares outstanding. So (\$200-\$50)/100=\$1.5 EPS Let’s assume that the perferred can be converted to total 20 shares of common: math become (\$200-\$0)/120=\$1.667 EPS I think back in LI, quick way to do this is to use the perferred dividend divided by total shares can be converted to common, if the ration is less than 1, then the perferred is antiduliative. (Or I may have my math wrong) What I am saying is that given a converstion ratio, convertable perferred CAN be antiduliative. But it may not always be the case.

issue convertible preferred, then buy call options that locks the dilutive price to a certain extent. Then issue warrants to lock in the price band. This way, you get your low cost capital (interest paid to converts are low, and doesn’t impact income much), and you won’t get diluted (somewhere in law says that if you have derivatives to hedge the converts, you don’t have to count it in diluted share count) A few companies have done this recently.

Can you name one?

ws, that doesn’t make it anti dilutive…you are just looking at it through one domain (EPS) what about FCFF??? Not to mention that the converts getting 1/4 of cash flow wouldn’t be willing to convert for 1/6 post exchange equity stake

passed3for3 Wrote: ------------------------------------------------------- > ws, that doesn’t make it anti dilutive…you are > just looking at it through one domain (EPS) what > about FCFF??? > > Not to mention that the converts getting 1/4 of > cash flow wouldn’t be willing to convert for 1/6 > post exchange equity stake You are right!!! I am taking the anti-duliative in EPS domain only. I am sure the numbers I used are not very representative nor makes much investment sense. Mathmatically, given a certain conversion ratio, a converitable perferred can be anti-duliative in EPS sense. However, it will be up to the investors to figures out if buying such convertable perferred makes financial sense for them. Believe me, I have seen some not so smart investors. That begs the question that who should the investment banker serve? The issuing-firm or the investing public?

Try a rights issue pro rata to existing shareholders that way one can raise capital and avoiding dilution

A rights issue on a pro ratat basis is still dillutive. Although, perhaps in a perfect world every shareholder will exercise their right to purchase additional equity. The point is that more equity will be outstanding and the ownership base has increased. Bottom line is, one can not raise equity without dillutive the existing equity base. Unless to put a derivative structure into another part of the capital strucutre (at that holders disadvantage) and some retaaad buys it…