STEP 1Three disclosures that change the share count
The size of each slice depends on how many pieces you cut the pizza into. Disclosures that change the share count are disclosures that change the number of pizza slices.
Paid-in capital increase: selling new shares to raise money
A is when a company issues new shares and sells them for cash. Company equity rises, but so does the number of shares. If the fictional Robin Bakery sells 400,000 new shares (20% of the existing 2 million) at KRW 7,200 each, KRW 2.88 billion comes in. The share count becomes 2.4 million, and the KRW 6 billion of equity from Lesson 9 becomes KRW 8.88 billion (share capital up KRW 200 million + capital surplus up KRW 2.68 billion).
If net income stays at KRW 1.2 billion, EPS = KRW 1.2 billion ÷ 2.4 million shares = KRW 500, down about 17% from KRW 600. Until the new money is used to grow profit, each share's slice gets smaller. This is . That is why share prices often weaken after a capital increase is announced.
Convertible bond: debt that later becomes shares
A starts out as interest-paying debt, but it is a bond that investors can exchange for shares at a set price (the conversion price) if they wish. If the fictional Robin Bakery issued KRW 1.8 billion of CBs at a conversion price of KRW 9,000, then 200,000 new shares are created when everything is converted. As calculated in Lesson 16, shares become 2.2 million and EPS about KRW 545. In exchange, KRW 1.8 billion of debt disappears and equity rises by KRW 1.8 billion, so BPS becomes KRW 7.8 billion ÷ 2.2 million shares ≈ KRW 3,545.
Treasury stock: buy it back, then cancel it
When a company buys its own shares on the market, it is a purchase. If the purchased shares are , the share count actually falls. If Robin Bakery buys 100,000 shares at KRW 9,000 and cancels them, shares become 1.9 million and EPS about KRW 632. Because KRW 900 million leaves the company, equity falls to KRW 5.1 billion and BPS actually drops to about KRW 2,684. It is normal for BPS to fall when a company whose share price is above BPS buys back its own stock.
Ownership after dilution = my shares ÷ (existing shares + new shares)Robin Bakery (fictional): my 20,000 shares ÷ (2 million + 400,000) ≈ 0.83% (originally 1.00%) · EPS KRW 1.2 billion ÷ 2.4 million shares = KRW 500
Quick checkRobin Bakery issued 500,000 new shares. If net income stays the same, what will EPS be?
KRW 480. KRW 1.2 billion ÷ 2.5 million shares = KRW 480. The share count rose 25%, so with unchanged earnings each share's slice shrinks by 20%.
STEP 2Who receives the new shares is what matters
Even for the same 20% capital increase, the position of existing shareholders is completely different depending on who gets the new shares.
Three capital increase methods
| Method | Who receives the new shares | For existing shareholders |
|---|
| Shareholder allotment | Existing shareholders (in proportion to their holdings) | If you participate, you can keep your ownership %. If you do not, you are diluted. |
| Public offering | Anyone can subscribe | If you do not subscribe and buy, you are diluted. |
| A specific party chosen by the company | You are diluted with no chance to participate. Who the recipient is and whether the price is fair are the key points. |
New shares are usually issued below the market price. The KRW 7,200 in the example above is also 20% below the KRW 9,000 share price. Because of the discount, part of existing shareholders' value shifts to the new shareholders, so the bigger the discount, the heavier the dilution.
Dilution simulator · Robin Bakery (fictional), if I hold 20,000 shares (1%)
Before disclosure
After disclosure
Pie: the dark part is existing shares, orange is newly created shares (for cancellation, grey is the shares that disappeared). This is a simple calculation assuming net income stays at KRW 1.2 billion; it does not include earnings growth from the new money or CB interest savings. All figures are fictional.
Conversion price adjustment (refixing)
CBs usually come with a clause that lowers the conversion price when the share price falls. This is called . If the conversion price drops from KRW 9,000 to KRW 6,300, the same KRW 1.8 billion buys about 286,000 shares, so the lower the share price falls, the more new shares are created. The Financial Services Commission's Regulation on Issuance and Disclosure of Securities sets the floor for adjustments due to market price declines at 70% of the initial conversion price, and from December 1, 2024, exceptions that go below 70% are allowed only with a special resolution of the shareholders' meeting for each issuance.
In Lesson 21, Dark Cloud Electronics (fictional) issued CBs three times over two years, KRW 6 billion in total. If the conversion price at issuance was set at KRW 5,000, then when everything converts to shares, KRW 6 billion ÷ KRW 5,000 = 1.2 million new shares are created. The share count more than doubles from 1 million to 2.2 million (+120%), and existing shareholders' share shrinks to 100 ÷ 220 ≈ 45%. Dividing Year 3 net income of KRW 300 million by 2.2 million shares takes EPS from KRW 300 to about KRW 136. The balance sheet looks better because KRW 6 billion of debt turns into equity, but earnings per share fall to less than half. This is the path by which shareholders of a company that survives on debt and CBs rather than profit are quietly diluted.
Common misconceptions
- "A paid-in capital increase is always bad news?"
- If the new money is invested in equipment that earns a high return, each share's slice can grow again over the long run. The interpretation differs depending on whether the use of funds is facility investment, debt repayment, or operating funds.
- "Buying treasury stock immediately reduces the share count?"
- If the company only acquires and holds them, the share count stays the same. It falls only when the shares are cancelled. That is why you must read 'acquisition decision' and 'cancellation decision' disclosures separately.
- "A CB is debt, so it has nothing to do with shareholders?"
- The moment it converts, it becomes new shares. Even CBs not yet converted are potential shares that could become stock at any time, so they are reflected in the diluted EPS from Lesson 16.
Quick checkThis CB has an initial conversion price of KRW 10,000. If the stock price is cut in half, how low can the conversion price go in principle?
Down to KRW 7,000. The floor for adjustments due to market price declines is, in principle, 70% of the initial conversion price. Going lower requires a special resolution of the shareholders' meeting for each issuance.
STEP 3The order for reading a material event report
Paid-in capital increases and CBs are disclosed in a material event report by the day after the board resolution. It may look long, but you only need to check five places first.
Five things first
- 1
Size: what % of the existing shares are the new shares?A paid-in capital increase decision shows 'type and number of new shares' and 'total shares issued before the increase'. Dividing one by the other gives the dilution size right away. For a CB, look at 'number of shares to be issued upon conversion' and 'percentage of total shares'.
- 2
Method and recipientsCheck whether the 'capital increase method' is shareholder allotment, public offering, or third-party allotment. For a third-party allotment or private placement CB, look at who the recipient is and what relationship they have with the company.
- 3
Price: issue price or conversion price and the discount rateSee how much cheaper than the current share price it is issued, and for a CB, what the refixing terms and the minimum adjusted price are.
- 4
Purpose of the fundraisingAmounts are broken out into facility funds, operating funds, debt repayment funds, funds for acquiring other companies' securities, and so on. If debt repayment and operating funds make up a large share, go back and review the cash flows from Lessons 20 and 21 first.
- 5
Schedule and historyCheck the expected listing date of the new shares and the CB conversion request period, and count from the filing list how many capital increases and CBs the same company has done recently.
The item names in a paid-in capital increase decision (type and number of new shares, par value per share, total shares issued before the increase, purpose of fundraising, capital increase method) were checked in the FSS OpenDART 'Paid/Free Capital Increase Decision' development guide. CB filing items can be worded slightly differently from company to company, so generic names are used here.
Try it yourself: three CB filings from Dark Cloud Electronics
Let's apply the five steps directly to Dark Cloud Electronics (fictional). Suppose you search the filing list for 'convertible bond issuance decision' and find three filings within two years.
| Disclosure | Amount | Conversion price | Shares on conversion | Use of funds |
|---|
| Year 2, H1 | KRW 2 billion | KRW 5,000 | 400,000 shares | Operating funds |
| Year 2, H2 | KRW 2 billion | KRW 5,000 | 400,000 shares | Operating funds, debt repayment |
| Year 3 | KRW 2 billion | KRW 5,000 | 400,000 shares | Debt repayment |
| Total | KRW 6 billion | | 1.2 million shares | |
Dark Cloud Electronics is a fictional company in this course (1 million shares outstanding, share price KRW 2,500, Year 3 net income KRW 300 million). All three are assumed to be private placements, with the minimum refixing price set at KRW 3,500, which is 70% of the initial conversion price.
1 Size: A single filing alone is 400,000 shares, 40% of the existing 1 million. If all three convert, 1.2 million new shares exceed the existing share count. 2 Method: All are private placements, so existing shareholders had no chance to participate. 3 Price: The current share price of KRW 2,500 is half the KRW 5,000 conversion price, so there is no reason to convert right now, but if refixing lowers the conversion price to KRW 3,500, KRW 6 billion ÷ KRW 3,500 ≈ 1.71 million shares. Then shares would be about 2.71 million, existing shareholders' share about 37%, and EPS based on Year 3 net income would go from KRW 300 to about KRW 110. 4 Purpose: It is operating funds and debt repayment, not facility investment. As seen in Lesson 21, it means a company whose operating cash flow was negative for all three years is covering its cash shortfall with CBs. 5 History: Three times in two years, with a growing share going to 'debt repayment'.
Viewed one at a time, they look like ordinary fundraising filings, but laid side by side, three of them paint the picture of 'a cash-starved company hanging on by giving up shareholders' value bit by bit'. A filing should be read not as a single title but by how many times the same type of filing was repeated, and for what purpose.
Find it yourself on DART
As in Lesson 3, search for the company and choose Material event report under filing type, and titles such as 'paid-in capital increase decision', 'convertible bond issuance decision' and 'treasury stock acquisition decision' appear. Treasury stock also appears in the exchange filings (KIND) as 'treasury stock acquisition decision' and 'share cancellation decision'. To see how many shares were actually bought after the decision and when they were cancelled, check the 'result report' and the table of total shares in Section I of the annual report.
Treasury stock cancellation is now the rule
According to the Ministry of Justice, a Commercial Act amendment that makes treasury stock acquired by a company cancelled in principle, with holding or disposal allowed as an exception only with shareholder meeting approval, passed the National Assembly plenary session on February 25, 2026. Cases where companies bought treasury shares only to hold them and used them to defend control or sell to friendly parties have long been criticized, and now companies must explain to shareholders 'why they are not cancelling'. For the specific cancellation deadline and scope of application, check each company's filings and the Ministry of Justice guidance.
How to use it in investing
| Filing title | What to calculate first |
|---|
| Paid-in capital increase decision (third-party allotment) | New shares ÷ existing shares = dilution rate, issue price discount rate, recipients |
| Paid-in capital increase decision (shareholder allotment) | The money needed to participate and the dilution rate if you do not |
| Convertible bond issuance decision | Number and % of shares upon conversion, and the maximum number of shares if adjusted down to the minimum price |
| Treasury stock acquisition decision | Whether there is a cancellation plan, size relative to market cap |
| Share cancellation decision | How much EPS rises in line with the percentage drop in shares |
You can check the numbers right away by entering them into the paid-in capital increase and CB dilution calculator.
It is not always the case. A capital increase by a company with clear growth opportunities, or one that greatly improves the financial structure, can help shareholders in the long run. Conversely, a treasury stock purchase without cancellation does not reduce the share count. What matters is the habit of checking 'size, recipient, price and purpose' by calculation rather than relying on the filing title.
Quick checkA company with 10 million shares issues 2.5 million new shares through a third-party allotment. What % of the original will the stake of an existing shareholder who cannot participate fall to?
It falls to 80%. 10 million ÷ 12.5 million = 0.8. A shareholder who held 5% now holds 4%, and with unchanged net income, EPS also falls 20%.