Listen to a Business English Dialogue About Subscription ratio
Nathan: Hi Elise, have you heard about subscription ratio in finance?
Elise: Yes, I think it’s the ratio used to determine how many new shares existing shareholders are entitled to buy during a rights offering.
Nathan: That’s correct. It’s typically expressed as a ratio, such as 1:2, meaning one new share for every two shares already held.
Elise: How is the subscription ratio determined?
Nathan: The subscription ratio is determined by the company based on various factors such as the number of new shares being offered and the number of existing shares held by shareholders.
Elise: Can you explain how the subscription ratio affects shareholders?
Nathan: Sure, a higher subscription ratio means existing shareholders have the opportunity to buy more new shares at a discounted price, potentially increasing their ownership stake in the company.
Elise: What happens if shareholders don’t take up their rights during a rights offering?
Nathan: If shareholders don’t exercise their rights, the unsubscribed shares may be offered to other investors or sold on the open market.
Elise: Are there any advantages to participating in a rights offering with a favorable subscription ratio?
Nathan: Yes, participating in a rights offering can allow shareholders to increase their ownership stake in the company at a discounted price, potentially increasing their potential returns in the long term.
Elise: Can a company change the subscription ratio after announcing a rights offering?
Nathan: Yes, in some cases, a company may adjust the subscription ratio based on market conditions or other factors, but they typically need to notify shareholders of any changes.
Elise: Thanks for explaining, Nathan. The subscription ratio seems like an important factor for shareholders to consider during rights offerings.
Nathan: Absolutely, Elise. Understanding the subscription ratio can help shareholders make informed decisions about whether to participate in a rights offering and how it might impact their investment.