Alternative Way for Calculating the Theoretical value of Shares & Rights

The following is an alternative model based on the equilibrium of the market.

An enlargement of capital does not have to suppose at the beginning at least, any benefit or loss for the shareholder for which it demands:

C= C1 + d (1)


 C= last quotation previous to the enlargement

 C= theoretical ex-right quotation

   d = theoretical value of the right of subscription

On the other hand, the equilibrium of the market demands that the resulting price of the shares of new subscription be equal to the old shares, less the difference between them in the rights for dividends.

Also, in the reality it is predictable a period of holding back the investment for the subscriptions of new shares, for which it may produce a difference of price due to the concept of a premium for the risk of temporary hold back of new shares, while not admitted to quotation on the market.

Being the conditions of the enlargement:

proportion = N1 new shares for each N0 old shares

price of issuance = P

difference of dividends = D

hold back premium = ?

An equality must be produced:

N1 xC1 = N0 x  d + N1 (P + D + ??

From the system constituted by the equality of (1) and (2) you can deduct the theoretical values of the ex-right quotation C1 and of the right d.

In (1) we have: d = C0 – C1

And substituting in (2):  N1 xC1 = N0 x  (C0 – C1??+ N1 (P + D + ??

From which: 

  C1 = N0 x C0 + N1 (P + D + ??

N0 + N1

A special case of capital enlargement is known as an accordion obligation. It consists in a reduction of the capital to wash the losses suffered by a company and to immediately enlarge the capital to increase the liquidity. It is an operation that is done when a company has had a negative evolution, but there are perspectives for the situation to get better and that is why there is an enlargement of the capital.