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Preference shares vs Common shares

Questions › Category: Financials Quadrant › Preference shares vs Common shares
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Theodore Tan asked 3 years ago

Hi Victor,
May I seek your help to understand if preference shares are traded on the stock market like common stocks?
If preferences shares are issued, does that mean the the number of shares on the market is increased and this dilute the shareholders’s current shares? 
Do you also have any opinion on ICBC as well?
https://www.thestar.com.my/business/business-news/2020/09/16/icbc-seeks-up-to-us44bil-in-capital-deal-term-sheet
Thanks!

1 Answers
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Victor Chng answered 3 years ago

Hi Theodore,
 
Preferences share (PS) only dilute shareholder if it can be converted to ordinary shares. In the case of most PS, it does not dilute. 
 
In the case of ICBC, it is a common practice in the bank to raise money in term of notes, bonds or PS to beef up their capital structure. Banks can either use the money of deposit or borrow money from notes, bonds or PS to lend out to borrowers. 

Theodore Tan replied 3 years ago

Thanks Victors

Victor Chng replied 3 years ago

Welcome :)