What is the expected impact on existing shareholders' ownership percentage and potential dilution?

Answer

1. What the numbers mean

2. Dilution – the “percentage‑ownership” effect on existing shareholders

Because the company is issuing 1.4 million new shares, the total share count after the IPO will be:

[
\text{Total shares post‑IPO} = \text{Existing shares} + 1,400,000
]

The exact percentage‑ownership change for any existing shareholder depends on how many shares they already own relative to the total pre‑IPO share count. Since the press release does not disclose the pre‑IPO outstanding share count, we can only illustrate the mechanics with a few plausible scenarios.

Key take‑aways from the table

• Dilution is proportional to the size of the existing share pool.
  
  If the pre‑IPO pool is relatively small (e.g., 5 M shares), the new 1.4 M shares represent a *22 %** increase in total shares, cutting an existing holder’s stake from 100 % to about 78 % (a 22 % dilution).
  
  If the pre‑IPO pool is large (e.g., 50 M shares), the same 1.4 M shares only add *2.8 %** to the total, so an existing holder’s stake falls from 100 % to about 97 % (a 2.8 % dilution).

• The absolute dollar value of the proceeds ($5.6 M) does not directly affect dilution; dilution is driven solely by the number of new shares relative to the existing share count.

3. What dilution means for shareholders

4. How existing shareholders can limit or offset dilution

5. Bottom‑line assessment

• Dilution is inevitable because the company is issuing 1.4 million new shares.
  
• The magnitude of dilution depends on the pre‑IPO share count—which the release does not disclose.
  
• In a typical mid‑size Hong‑Kong financial‑services firm (e.g., 10–30 M existing shares), the new issue would represent ~4 %–14 % of the total post‑IPO share base, translating to a 4 %–14 % reduction in each existing shareholder’s ownership percentage if they do not participate in the offering.
  
• The cash raised ($5.6 M) can be used to fund growth, improve the balance sheet, or expand the business, which may ultimately enhance the company’s earnings and market valuation, offsetting the mechanical dilution over time.
  

6. Quick “rule‑of‑thumb” formula you can use

If you know the pre‑IPO share count (S₀), the post‑IPO share count (S₁) is:

[
S₁ = S₀ + 1{,}400{,}000
]

Your new ownership percentage (if you do not buy any of the new shares) is:

[
\text{Ownership}_{\text{post}} = \frac{\text{Your pre‑IPO shares}}{S₁}
]

The percentage dilution you experience is:

[
\text{Dilution} = 1 - \frac{S₀}{S₁}
]

Plug in the actual S₀ once you obtain it from the company’s shareholder register (or from its annual report) to get the exact figure for your stake.

In summary: Existing shareholders will see their ownership percentage fall because 1.4 million new shares are being added to the capital structure. The exact size of the dilution depends on how many shares were already outstanding, but a typical range for a firm of this size is roughly 4 %–14 %. While dilution reduces each share’s claim on earnings and voting power, the $5.6 million of fresh capital can be deployed to grow the business, potentially delivering higher future earnings that offset the dilution’s impact on value. If existing shareholders want to keep their stake unchanged, they would need to purchase a proportionate slice of the new issue (subject to any rights‑allocation provisions).