Proposed Private Placement -> Diluting EPS | The Investment Quadrant by The Fifth Person

Questions › Category: Financials Quadrant › Proposed Private Placement -> Diluting EPS

Henry Henry asked 2 years ago

Hello IQ team, when a company having a propose private placement, the EPS is diluted.
My understanding is that the total number of shares increased…and EPS will be reduced, which is not so good as I understood from the training.
Appreciate your views of sharing.
Thank you

2 Answers

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Jieren Zheng answered 2 years ago

Yes, at the same time, there is no cash call from retail investors from us.

Generally, as long the private placement is not a very significant percentage of the total amount of shares is generally fine. Or ideally not at a significant discount.

It would generally be a good sign if the placement is done to help the company’s growth.

There are also times when the company does a private placement because there’s not enough retail interest to be worth it.
Hope it helps.

Henry Henry replied 2 years ago

Thanks for sharing Jieren Zheng.

I have terminology not familiar from your statement, appreciate if you can explain further:

1. May I know….what do you mean by….”there is no cash call from retail investors from us”.

2. Can you elaborate more on below statement?
“Generally, as long the private placement is not a very significant percentage of the total amount of shares is generally fine. Or ideally not at a significant discount.”
(I couldn’t get the real meaning from statement on above)

Thank you

Jieren Zheng replied 2 years ago

Welcome.

1) Cash call is just a way of something that the company is asking money from us/others.

2) Private placement is a dilution as the number of shares are increased. But increasing 5% of total shares vs increasing 30% of total shares, one is very significant correct? Or if it is offered at a slight discount, there might be a dilution on price, if it is too huge (especially like Rights Issues), because you can’t subscribe you will be diluted a lot too.

Henry Henry replied 2 years ago

Thank you Jieren Zheng, appreciate on your sharing!

Jieren Zheng replied 2 years ago

Welcome :)

Victor Chng replied 2 years ago

Thanks JR

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Victor Chng answered 2 years ago

Hi Henry,

I did discuss something similar to what you are asking in another thread. You can see the link below.

investmentquadrant.com/question/management-quadrant-share-repurchases/

Henry Henry replied 2 years ago

Hi Victor….thanks for the additional discussion material to read up.

Victor Chng replied 2 years ago

Welcome :)