A stock corporation has resolved a capital increase. A capital increase allows companies to increase their equity. For you, as a shareholder, this means that you can acquire new stocks at a preferential price (subscription price) in order to maintain your percentage share in the company. You can find more information about the capital increase in the so-called Investor Relations section of the respective company website.
How does the capital increase work?
For each stock you own on the record date (ex-date), you receive subscription rights in a so-called split ratio. Subscription rights are the right to acquire new stocks. With a split ratio of 1:1, you receive one subscription right for each stock, with a ratio of 2:1 you receive one subscription right for two stocks, and so on. The subscription right has its own ISIN and is usually entered in your securities account without name and value. You can find it in your profile under your investments.
Please note: The number of subscription rights that are displayed in your investments at Trade Republic applies. Differing information in the cover letter regarding the number of subscription rights booked in is not valid. You can inform us by the date stated in each case whether you wish to participate in the capital increase.
Subscription right: Calculation example
The subscription right is calculated on the basis of the previous stock capital amount.
The company can decide for itself how much capital it needs and how many new stocks it wants to issue.
In most cases, the stock capital is increased by a fraction of this amount. If a stock corporation has a capital of 20 EUR million, for example, it may be that 2 EUR million to 5 EUR million is to be raised through new stocks.
Depending on the amount of the capital increase in relation to the stock capital, the subscription right is also calculated. In the subscription right example, the stock corporation would like to raise 2 EUR million.
The ratio to the existing capital stock is therefore 20:2, i.e. 10:1.
For shareholders, this means that for every 10 stocks they already have in their portfolio, they receive 1 subscription right to a new stock. For example, if one already has 532 stocks, one would receive the subscription right to 53 new stocks.
If, in the subscription rights example, the company plans to raise 5 EUR million, the ratio would be 20:5 or 4:1. If the same retail investor has 532 stocks, he’d receive 532:4 = 133 subscription rights to the new stocks in this case.
To give you as a buyer an incentive to support the company in the capital increase, the new stocks are usually offered at a lower price than the current stock price.
The subscription right example can look like this:
The above company raises 4 EUR million, the ratio is therefore 20:4 or 5:1. The price of the old stocks is currently 50 EUR. The young stock is to cost 40 EUR. Before the capital increase, the average price per stock is 50 EUR. The average price after the increase is calculated as follows:
new stock price = (subscription ratio * stock price(old) + 1*price of young stock) /(subscription ratio +1).
A subscription right therefore has the calculated value of 50 EURf (current stock price) -
48.33 EUR (value of the stock after the capital increase) = 1.67 EUR
The value of the subscription right is to be regarded here as an approximate value. The exact subscription price depends on the respective capital measure.
Exercising subscription rights
When exercising your subscription rights, the subscription ratio and the subscription price are important. You need a certain number of subscription rights to participate in the capital increase. Only whole new stocks can be subscribed. The number of your old stocks remains unaffected by the capital increase. The subscription price will be deducted from your cash account as soon as the capital increase is completed. The settlement of the capital increase can take several weeks.
Example:
With a subscription ratio of 5 (20 : 4), the following scenario arises:
If you own 200 subscription rights, you can subscribe to 40 new stocks against payment of 1.67 EUR per new stock.
For 20 of your subscription rights, you receive 4 new stocks against payment of the subscription price of 1.67 EUR per new stock.
**If you decide to exercise your subscription rights, please enter the correct number of stocks to be subscribed in the instruction form and tick the desired option. **
Trading of subscription rights
For some subscription rights, trading with Trade Republic at the market price is possible for a certain period of time. This is indicated on the instruction form.
Alternatively, you can also order the purchase or sale of subscription rights using the instruction form. In this case, delays may occur due to the processing time. Execution can’t be guaranteed and depends on supply and demand of the subscription rights. In this case, the sale or purchase will only be executed at the end of the corporate action in order to exchange any remaining or total holdings for new stocks.
Oversubscription
If an oversubscription is possible, you can buy additional new stocks at the subscription price over and above your subscription rights. The subscription price is also charged for each additional new stock purchased. You can order an oversubscription by issuing instructions. An oversubscription can’t be guaranteed and may be allocated on a pro-rata basis.
If you don’t take any action, we’ll sell your subscription rights at the best possible price at the end of the capital increase. If this isn’t possible due to supply and demand, your subscription rights will be derecognized without value. This is the standard instruction for which a fee of 1 EUR will be charged. For the processing of a specific instruction, Trade Republic charges a fee of 5.00 EUR according to the List of Prices and Services available on our website.
Please send your instruction to service-lu@traderepublic.com by the specified date, i.e. by the end of the instruction period at the latest. It’s important for us that the receipt is recorded in time. You can use the form in your profile or send us your instruction by email.
Trade Republic has no influence on the time it takes to post and unpost your orders after receiving your instructions. This can take several weeks.