A capital increase from company funds (nominal capital increase) differs from a capital increase against cash, as in this case no further contributions are made to the stock corporation.
Instead, capital reserves and retained earnings are converted into stock capital. The newly created stock capital is usually passed on to the shareholders in the form of stocks.
A company carries out a nominal capital increase, for example, to lower its stock price or to increase its own credit rating.
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’ll receive one subscription right per stock. With a ratio of 2:1 you’ll 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 a name and value. You can find it in your profile under your investments.
Please note: The number of subscription rights displayed in your Trade Republic profile under your investments applies. Deviating information in the cover letter regarding the number of subscription rights booked is not valid. You can inform us by the date stated in each case whether you would like to participate in the capital increase.
Subscription right: Example calculation
The subscription right is calculated on the basis of the previous amount of stock capital. The company itself decides how much capital it needs and how many new stocks it will issue.
In most cases, the stock capital is increased by a fraction. 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 hold in the portfolio, they receive 1 subscription right to a new stock. Thus, with 532 stocks, one holds 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. Thus, with the same 532 stocks, the shareholder would have (532:4=) 133 subscription rights to the new stocks in this case.
In order to create an incentive for buyers to support the company in the capital increase, the new stocks are usually offered at a lower price than the current stock price. The existing shareholders receive the subscription right, which in turn has a certain value, depending on the price of the young and old stocks. The subscription right example may look like this:
The above company raises 4 EUR million, so the ratio is 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 EUR (current stock price) - 48.33 EUR (value of the stock after 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.
Exercise of 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 settlement account as soon as the capital increase is completed. The processing 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. Alternatively, you can return the subscription rights to the Company to receive a cash settlement, deducting any withholding tax.
Trading in subscription rights
Some subscription rights can be traded via Trade Republic at the market price for a certain period of time. This period is indicated on the instruction form.