If the share issue is pro rata and the shareholder participates then no dilution occours.
Really just depends on how the capital is spent as to whether it's in the shareholders best interest.
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Yes like I said it depends on how the capital is spent. If it is spent on repaying debt that is at relatively low real interest rates, then clearly you will get a worse result.
But if the additional capital is deployed at a 20% CAGR, then shareholders will get a better result.
I should have said above the CAGR is halved not accounting for the debt costs saved. As the outlay is double for the same earnings + savings on interest. What I meant to say is revenue will stay the same despite the market cap doubling.
So as long as you understand that having a capital raise at a pro-rata basis to circa the equivalent of the companies net worth to pay off debt is likely to have a worse outcome for shareholders over time than just paying down debt from income. I.e unlike what SailorBoy said, it does matter.
When could this happen? If debt covenants were triggered. I haven't had a look at what those covenants are, but typically there is one tied to the valuation of the company and its ratio to debt. And I'm not suggesting this is likely to happen but is something that should be known by an investor.
Perhaps you could answer that?
Yes as far as I'm concerned it's just if OCA is unable to meet repayment obligations or if covenants are breached, which is why I found it strange that SNOOPY said "if the banking syndicate of the RV becomes uneasy about the debt on the company balance sheet" as if it mattered.
If I'm mistaken then please someone let me know.
Very topical. What you don't want is OCA being asked the same question by their banks as Ryman was by their lender.
Speaking of which, my understanding is that Ryman's debt to equity ratio when they were forced to raise capital was circa 45%, OCA's is around 60%. Happy to be corrected on any of that.
Perhaps this explains the current valuation.
Institutional investors waiting to see if there is a discounted capital raise?
Anyone know what OCA's debt covenants are?