How to buy cash capital increase subscription? Will the stock price really go up?

Cash capital increase is a common method for companies to raise funds and often becomes a focus of investor attention. But the question is: How to buy shares during a cash capital increase? Will it cause the stock price to rise or fall? This article will clarify these doubts and help you understand the mechanism of cash capital increase through real cases.

Understanding the Operating Logic of Cash Capital Increase

What is a cash capital increase?

A cash capital increase refers to a listed company’s issuance of new shares to existing shareholders to raise funds. In simple terms, it means the company issues new shares to gather capital.

Why do companies conduct cash capital increases?

Companies typically initiate cash capital increases in situations such as expanding operations, investing in new businesses, repaying loans, optimizing capital structure, or emergency financing. After the increase, the company’s share capital will increase accordingly.

What is the standard procedure for a cash capital increase?

The entire process usually follows these steps:

• Management decides on the capital increase plan and determines the target fundraising amount
• Announce the capital increase to existing shareholders, specifying the subscription price, number of shares, and total amount
• Shareholders decide whether to participate in the subscription and make payments
• The company verifies the payment status and approves the amount of capital increase
• New shares are issued to the accounts of participating shareholders

The Multiple Effects of Cash Capital Increase on Stock Price

When a company announces a cash capital increase, will the stock price go up or down? It is not a simple one-way reaction but depends on the combined effect of multiple factors.

Three situations where the stock price may fall after a capital increase:

First, a significant increase in new share supply may depress the stock price if it exceeds market demand. Second, investors may adopt a cautious attitude towards the plan, worrying about dilution of existing shareholders’ rights or believing that the company’s future profitability might be affected. Third, if you do not participate in the increase, your ownership percentage will be diluted, which could push the stock price down.

Three situations where the stock price may rise after a capital increase:

Firstly, if market demand for the new shares is strong, it can support the stock price to go higher. Secondly, if investors are optimistic about the future returns of the plan and believe that the funds will promote company growth, the stock price is likely to be positive. Lastly, existing shareholders actively participate in the increase and buy additional shares to maintain their ownership ratio, and this confidence can also drive the stock price up.

How to Buy Shares During a Cash Capital Increase? Complete Process

Once you decide to participate, how do you subscribe? Here is a detailed explanation.

Step 1: Obtain subscription eligibility

Not everyone can participate in the subscription. Usually, only shareholders who hold the company’s stock before the record date have the right to subscribe. The company will clearly specify the record date in the announcement.

Step 2: Understand the subscription details

The company will disclose key information such as the subscription price, maximum number of shares that can be subscribed, and the payment deadline in the capital increase announcement. Be sure to read carefully to ensure you meet the subscription conditions.

Step 3: Make payment and complete the subscription

Within the specified period, complete the payment through the designated bank or securities firm. This is usually done either in a lump sum or in installments, depending on the company’s arrangement.

Step 4: Wait for the new shares to be delivered

After completing the payment, you need to wait for the company to handle shareholder registration, exchange approval, and other procedures. According to the company’s schedule, the new shares are usually issued to your account within a few weeks to months after the record date.

Real Case: Stock Price Performance After Subscription

Tesla’s cash capital increase case (2020)

In 2020, Tesla announced the issuance of approximately $2.75 billion in new shares, with a subscription price set at $767 per share. The funds were mainly used for global capacity expansion and new factory construction.

After the announcement, there was concern that new shares would dilute existing shareholders’ rights. However, due to Tesla’s high market heat at the time, investors generally had a positive outlook on its development prospects, believing that this capital increase would accelerate growth. As a result, the stock price not only did not fall but actually rose after the announcement. This case illustrates that a cash capital increase is not necessarily the reason for a stock price decline; market expectations and company outlook often play a more significant role.

TSMC’s cash capital increase case (2021)

On December 28, 2021, Taiwan’s leading semiconductor company TSMC announced a cash capital increase plan. As an industry leader, TSMC’s performance has always been stable, and existing shareholders are confident about the company’s prospects.

Market reactions were very positive, with many investors optimistic that the funds would be used for R&D upgrades, plant expansion, and new technology investments, thereby strengthening TSMC’s competitive advantage. Shareholders actively subscribed, maintaining their ownership ratios. As a result, the stock price also increased after the announcement. This case shows that when a company’s fundamentals are solid and shareholder confidence is high, a cash capital increase can serve as a catalyst to boost the stock price.

Key Factors to Consider When Subscribing

Advantages of a cash capital increase

• Raises substantial funds for business expansion and new projects
• Improves capital structure, reduces debt pressure, and enhances credit ratings
• May be viewed positively by the market, boosting investor confidence

Risks of a cash capital increase

• Dilution of existing shareholders’ ownership ratios, potentially unfavorable to original shareholders
• Market reactions are unpredictable; investor sentiment may lead to stock price declines
• Subscription involves handling fees, issuance costs, and if the issue price is below market price, it can lower the company’s valuation

Pre-investment due diligence

Before subscribing, thoroughly research the company’s fundamentals, industry trends, and market environment. Do not participate blindly just because of a cash capital increase. Also, ensure you understand the subscription timetable and delivery process to avoid missing important deadlines.