Capital increases by companies listed in Tehran Stock Exchange rose 14% in the last Iranian year (ended March 19, 2016), as companies raised cash to keep their solvency.
According to Gholamreza Aboutorabi, head of Securities and Exchange Organization’s Office for Securities Issuance and Registration, companies raised 311 billion rials ($8.9 million at market exchange rate) of equity last year, IRNA reported.
Capital increase refers to an increase in the size of a company’s equity capital. It is done either through the issue of new shares or a hike in the par value of the company’s capital stock.
A hundred and fifty-three companies got permits to raise capital during the year; 63% of the total was raised through the sale of new stocks, 18% were funded by retained earnings from prior years and 17% came from par value of the company’s capital stock.
Increases in the total capital stock negatively impact shareholders since they result in dilution. However, the increase in capital stock may, in the long run, benefit investors in the form of increased return on equity through capital gains, an increase in dividend payouts or both.
Investors and analysts are wary if a company continually initiates additional stock share offerings, as this often indicates that the company is having difficulty maintaining financial solvency with current revenues and is in constant need of additional financing.
