Raising Capital

A public company has several possibilities of raising capital on the marketplace to realize expansion plans, mergers and acquisitions or investments.

Raising capital may be the initial reason for becoming listed, but it is also a common measure used by established, already listed companies. Below is a short description of the different ways capital can be raised in the capital market and other common measures by public companies.

In a public issue, capital is raised by a new share issue where the new shares are offered for free subscription at market price or alternatively a rights issue, where the shareholders are offered the new shares in proportion to their existing holdings.

A direct placement is a non-public issue where the existing shareholders’ preferential rights are by-passed by offering the new shares to a selected investor or company against cash settlement. An issue of this type is aimed at an already known investor, group of investors or an existing shareholder in the company. The shares are issued against settlement in cash and at market price or higher.

In an issue against a non-capital contribution, shares are issued as full or part payment for the takeover of another company or other assets.

A merger involves a combination of two or more companies, where one company often places a bid on the other company by offering cash payment or payment in shares.

In a bonus issue, the new shares are allotted to the existing shareholders without charge, in proportion to their existing holdings. This type of issue is used to increase the share capital of the company; it does not bring new capital into the company.

In an issue of employee shares, the employees subscribe for shares in the company. The company may offer its employees existing shares, for example from the company’s portfolio of own shares or issue new shares.

A split or reversed split could be used by a company to decrease or enhance the nominal value per share. This measure is often used to stimulate trading in the share, if the share price has become very high. A split renders more shares at less per share value; the reversed split gives the opposite effect. Splits do not bring new capital into the company.

Important information

First North is an alternative market, operated by the different exchanges within NASDAQ OMX. It does not have the same legal status as a regulated market in EU, which is a term used in the EU directive, called MiFID. According to MiFID, trading can be organized with a less complicated set of rules within the framework of a Multilateral Trading Facility (MTF). First North is operating as MTF and Companies traded there are subject to the rules of First North and not the legal requirements of regulated market. Due to lower requirements in First North, the risk in such an investment may be higher than on the regulated market.