It is no secret that most companies are in diar need of money. With a choke hold on credit, it can definitely be a hard task to accomplish. It seems as the longer we go on that more and more companies will need to take “last resort” stances to keep from go bye bye.
A popular trend that could be coming around soon deals with equity raising. Essentially they will be selling equity within the company at a discount. So if a stock cost $60 they might sell it to investors at $50.
If it is a somewhat easy way of raising money, then why don’t more companies use this method?
While this obviously is not something new, it defintly not something companies would prefer to take part in. Lets think simple supply and demand. As quanity of an item increases (i.e. volume of outstanding shares) eventually the value of that will decrease (i.e. real value of stock diminishes).
If you need another example, then look at the U.S dollar. There was just so much of it floating around, and now it is losing value. The more is not always merrier.
The reason this is all coming to the forefront now is that international mining company, Rio Tinto (RTP), is in need of paying down some debt come October. Although they have yet to rule anything out, Rio is considering if this move is in the best interest of current shareholders.
We are obviously in a copy cat world. It only takes one company to do it before another follows. For the market as a whole, is this dilution idea really the best thing?