How does a capital increase work?

A technical question:

Idorsia is about to perform a capital increase. Media release is here. Shareholders are allowed to execute subscription rights.

What is a bit confusing for me is that (quote) “the offer price for the new shares and the final number of new shares to be issued will be determined following a bookbuilding process for the shares not taken up by existing shareholders.”

Shouldn’t the offer price of the new shares not always be known in advance?
How can a shareholder be expected to buy additional shares without knowing the price?

Maybe somebody here in the forum knows and can enlighten me. :slightly_smiling_face:

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You first need a bookbuilding to determine the price. Once you determined the price you need to buy a subscription right to be able to buy the new share. The current stockholder can sell the subscription right or use it to buy new shares.

That link may help you:

In this case the subscription rights cannot be traded.

If I understand this correctly, the shareholders must decide until October 20th whether they want to buy shares or forego their rights. Yet the offer price won’t be known until October 21st.

So they’re buying shares but don’t know at what price. :thinking:

I dont know the case at Idorsia, but obviousely they need more capital. Instead of taking another loan they decided to increase the equity. They usually have a certain amount in mind, lets say 500m. Now they make a bookbuilding in which big investor say how many stocks they want at which price. Once the bookbuilding is closed they decide how many shares they want to issue at which price. Makes no sense to publish an amount and price in advance an noone buys them.

Keep in mind that what I just explained is very basic and must no be the case at this specific capital increase

Just to complete this topic, in case somebody stumbles upon it in the future and might be interested:

After some reading I found that capital increases usually, as I was expecting, have a preset issue price for the new shares and the subscription rights can be traded, since they do have a monetary value.

Much less common, but still a possibility, is to conduct a capital increase without defining the issue price in advance. In this case, the issue price is expected to be close to the market price. Since the subscription rights do not have any meaningful monetary value, they are usually not open to trade.

Similar thing happening with Dufry (DUFN).
I believe today is the last day to “make the call”.
I decided to let it fly by and not act (as I didn’t have time to read and understand all the details). :smiley:

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