Answer a:

The potential advantages of the proposed new equity issue to the minority shareholders are:

1. Opportunity to increase the shareholding: The new equity issue to the minority
shareholders gives the minority shareholders a right to increase their shareholdings in
the company at a discount than the current share price of the company in the market.
2. Issuing new equity is cheaper: The company in its annual report mentioned that the
company will be repaying the debt/borrowing which the company has taken from the
money raised through the new equity issue, this is beneficial for the company because
issuing equity is the cheapest source to get funds from the market. Repaying the debt
from the money which the company will be getting through the equity issue will mean
that the company will look attractive because the company is now less levered.
3. Saves a significant amount of money: By the way of issuing new equity the
company is able to save a significant amount of money, such as underwriting fees,
advertising fees, and so on which are involved otherwise when the company wants to
raise funds through any other process like issuing bonds or debentures, etc.

The disadvantages of the proposed new equity issue to the minority shareholders are:

1. Dilution of Shareholding: Whenever the company issues new equity shares to the
minority shareholders the current shareholding of the shareholders gets diluted
because new shares are issued and the promoted who are not the minority
shareholders will have to take the brunt because they are the ones who will not be able
to subscribe to the new issue because the issue is specifically for the minority
shareholders.
2. Failure to raise the money: The ultimate intention behind the company to issue new
equity to the minority shareholders is to raise money to fund its operation or repay its
debt, but because the company cannot be sure whether the minority shareholders will
be fully subscribing to the shares or not, is a cause for concern and one of the biggest
disadvantage because the cost will already be incurred and the company will not be
able to raise the fund which will lead to unnecessary expenses for the company.
3. Diminish the company’s public image: Generally it is seen that the company which
is issuing new equity is facing liquidity crisis and if the company at this times issue
equity it brings a negative market sentiment towards the company, thus it is seen that
most times the new equity issue are not fully subscribed by the minority shareholders.