Financing Through Preferred Shares

If you are looking for financing through a hybrid instrument that provides permanent capital without interest payments and without diluting voting rights, then you are on the right page.

  • Unlimited-term capital
  • Financing without voting-right dilution
  • No interest payments
I want to finance my company
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Why Preferred Shares?

You want to raise permanent capital but you do not want to give up control, nor do you want to be required to pay interest, yet you are willing to pay dividends with priority to new shareholders — but… that’s enough. A joke was about to follow about your secret salsa recipe, which really had no place in a discussion about capital increases through cash contributions via preferred share issuance.

We believe the idea is clear — your company defines the formula used to calculate the preferred dividend, issues the shares, takes into account that ordinary shareholders cannot receive dividends until this preferred dividend is paid, and suddenly you have a capital increase without granting voting rights in the General Meeting of Shareholders.

Secondary and Subsequent Offerings

The process is the same as for ordinary shares — a primary public offering or a private placement. As with ordinary shares, the operation involves a capital increase and more substantial amendments to the articles of association. There is also the possibility for an existing preferred shareholder to organize a secondary public offering to sell their holdings in order to finance their own activities.

As with ordinary shares, the term “secondary offering” may also mean that a second (or third, etc.) offering of shares from the same class has been launched (also called a “subsequent offering” — but it’s fine, call it whatever you like). Depending on the situation, either a prospectus (for public offerings) or an offering presentation document (for placements) will be required, while the administrative steps, duration of operations, and listing conditions are similar to those applicable to financing through ordinary shares.

How Long Does Listing Take?

Accordingly, just as with public offerings and placements of ordinary shares and corporate bonds, investors accessible through Investimental expect the issuing company to commit firmly to listing through the offering documentation. In the case of public offerings, this usually happens quickly, within one month after the offering closes, while for placements the duration is longer, typically around three months from completion.

Similarly to bonds, depending on the chosen structure, the time from contract signing to the receipt of funds by the seller may be around 3–4 months for private placements or 6–8 months for public offerings (the latter requiring ASF approval prior to the offering). These timelines may be extended if the company’s operations and organizational structure are highly complex or if insufficient internal resources are allocated to the transaction.

Main Listing Requirements

Do you want to be admitted to trading? Depending on the market on which the shares will be listed, your company must meet certain criteria. As with bonds, it must have a history of published financial statements of at least three years, of which the most recent one to three annual statements must be audited. Moreover, for the main market there are also profitability requirements.

The issuer must also have a Board of Directors consisting of at least three members (in some cases at least five) and include in its articles of association certain provisions required by the legislation of the market on which it will be listed. For shares, these requirements are stricter than for bonds, as they also relate to the organization of the General Meeting of Shareholders and the payment of potential dividends.