Will YuuZoo’s new funding deal wreck its share price?
18 September 2015
Business Times Singapore
IT may come across as a simple deal, but YuuZoo Corp’s recently announced S$30 million funding facility from US-based fund GEM Global is by no means heartening for investors saddled by the anaemic showing of its stock since its debut on the Singapore Exchange a year ago.It also signals limited borrowing options for YuuZoo, debt free as it is, which would need capital to acquire assets to grow its social e-commerce networks or business of “virtual shopping malls”.
The deal allows YuuZoo, as an when and if it needs cash over the next three years, to tap the funds provided under the facility by issuing new shares to GEM Global at a 10 per cent discount to prevailing market price on the date of the drawdown request.
To sweeten the proposition for the lender – afterall, why lend unless one is incentivised – YuuZoo’s executive chairman and chief executive Thomas Zilliacus will lend his shares to GEM Global.
This gives GEM Global, an alternative investment fund, the ability to sell YuuZoo shares – the borrowed shares gives it stock to sell first – and then later get new shares at a 10 per cent discount, hence a chance to pocket gains on the spread. This in turn could drive the stock down further and therein lies the rub.
Share lending in itself, say industry participants, is not uncommon, as it serves to bridge the time gap – it could take three to seven market days between the drawdown, the issue of shares at a discount by the firm and receipt of shares by the lender.
Without the share lending mechanism, lenders are exposed to market risks over that period.
That, however, does very little to detract from the worry that the selldown of YuuZoo shares by GEM Global could add salt to injury for a stock that has lost two thirds of its value since its debut a year ago following a reverse takeover.
“I have to lend the shares to GEM…I’m not too excited to do that but it was necessary for the deal to be done,” said Mr Zillliacus when contacted by The Business Times.
(As part of the agreement, YuuZoo has also proposed to issue 55 million warrants to GEM Global.)
More downward pressure ought to be a chief concern, not least for the firm, which in May, lobbed a 16-page rosy research report on a filing to the exchange to argue why it deserved more attention.
So upbeat was the report by UK-based New Edison – it was commissioned by YuuZoo – that it fair-valued the stock based on a “rapid growth scenario” at S$1.83, a stark contrast from the paltry market reality of its trading price then of 23 Singapore cents.
YuuZoo’s strategy worked for a bit – it triggered a rush which saw the counter jump 50 per cent over four trading days but it didn’t last. In the ensuing months, the counter would plumb to a low of 12.7 Singapore cents by late August and is now trading at around 16.5 Singapore cents.
Selling pressure could heighten depending on whether GEM Global will drip feed the shares received into the market to minimise impact or offload aggressively. It also depends on how much YuuZoo plans to drawdown at any one point of time.
All of that, according to Mr Zilliacus, is squarely up to the firm: “We control when we want to take the money, how much and if we want to drawdown the funds at all. It’s a security for the next three years.”
Moreover, he said, “they can’t dump all the shares in the market. The selling is controlled in the agreement.”
The deal’s flexibility may offer some comfort but it ultimately boils down to how YuuZoo, which has made an average of one acquisition every four months – the assets are in China, Nigeria and South-east Asia – over the past year, will deploy the capital.
YuuZoo’s shares are “terribly under-valued”, lamented Mr Zilliacus. “They (investors) are looking purely at historical numbers and have not included all the deals that we have signed and executed.”
Sadly for him, the most recent capital call could give investors another reason to pause.