1. Introduction
A Share Subscription Facility (SSF) is a way for a company to raise money by selling its shares over a period of time. Instead of selling all the shares at once, the company can sell them step by step. This guide explains how an SSF works, why a company might use it, and the good and bad sides for both the company and its investors.
2. What Is a Share Subscription Facility?
An SSF is like an “equity line of credit.” A company makes an agreement with an investor. The investor promises to buy a set amount of the company’s shares in the future, up to a certain limit. The company can then “draw” on this line whenever it wants money—by selling more shares to the investor.
Key Parts:
- Total Commitment: The most money the investor could give the company.
- Drawdowns: Times when the company decides to sell some shares to the investor for cash.
- Pricing: The price of these shares is often set as a discount (like 90%) of the market price.
- Term: How long the company can use this deal, usually 2–3 years.
- Fees: The company might pay a fee (a small percent of the full deal) plus legal fees.
3. How It Works
- Agree on Terms
The company and the investor sign a contract. It says how much money can be raised and how the price will be decided. - Draw Down (Selling Shares)
When the company needs money, it tells the investor it wants to “draw down.” This starts a period (often 10–15 days) where the share price is checked in the market. - Set the Share Price
After that period, the final share price is usually a discount to the average price over those days. If the price goes below a certain level, the investor might pay less or buy fewer shares. - Close the Deal
At the end of the period, the investor pays the company, and the company issues (creates) new shares for the investor. - Repeat
The company can do this again and again until the total amount is reached or the time limit ends.
4. Benefits
4.1 For the Company
- Flexible Money: The company can choose when to sell shares, instead of taking all the money at once.
- No Big Loan: This is not a typical loan with interest payments. It’s an agreement to sell shares, so there is less worry about repaying debt.
- No Collateral: The company does not have to pledge any assets. It just gives out new shares.
4.2 For Current Investors
- No Risk of Default: Because it’s not a loan, there is no big debt that could cause a default (failure to pay).
- Chance for Growth: If the money from the SSF helps the company grow, current investors could benefit long term.
4.3 For Future Investors
- Company Stays Funded: If the company uses the SSF wisely, it can have enough cash to develop its products or services.
- Less Pressure: The company may not need other quick financing, which can help keep future deals smoother.
5. Risks & Drawbacks
5.1 For the Company
- Dilution: Each time the company sells new shares, all existing shares become worth a smaller slice of the company.
- Uncertain Funding: If the share price drops too low, the investor might not buy as many shares.
- Fees: The company pays a fee upfront or along the way, which can reduce the total money it gets.
5.2 For Current Investors
- Share Price Pressure: Repeatedly selling discounted shares can push the price down over time.
- Lower Ownership Percentage: Current investors own a smaller percentage of the company with each new sale of shares.
5.3 For Future Investors
- New Shares Keep Coming: If there is a constant flow of new shares, future investors might worry about the stock price staying low.
- Valuation Concerns: A falling share price can make future equity deals less attractive for big investors.
6. Considerations for Strategic Investors
“Strategic investors” are often bigger partners or other companies. They may worry if an SSF creates too much dilution or keeps the share price from rising. They might also prefer a stable share price, so big drops or constant share issuances can scare them away.
7. Best Practices & Tips
- Draw When Market Is Good: Try to sell shares when the stock price is higher, so the discount has less impact.
- Set a Fair Threshold Price: This protects the company from selling shares too cheaply if the stock price falls a lot.
- Combine Financing: Use the SSF alongside other funding (like loans or a regular stock offering) so you’re not dependent on just one method.
- Be Clear and Open: Tell your investors how and why you use the SSF to avoid confusion or fear.
8. Conclusion
A Share Subscription Facility can help a company raise money in a flexible way by selling new shares over time. It might be a good option if the company wants to avoid a large loan. But it also brings risks, like share price pressure and investor dilution. If used wisely and at the right times, an SSF can support growth. Still, companies and investors should fully understand these deals before jumping in, because constant share sales might scare off other investors and push the price down.