AfterPay Trading Halt
The securities of Afterpay Touch Group Limited (ASX: APT), has been placed in a trading halt at the request of Australian based fintech company, pending the release of an announcement. Under generalist trading terms, unless ASX decides otherwise, the securities will remain in the trading halt until the commencement of trading on Thursday, 13 June 2019 of when the announcement is released to the market.
There was an announcement of sales growth by more than 143% over the past year and a fall in the share price by more than 2% to $24.17 from $25.17/share due to ongoing talks with regulators on money laundering issues. With this in mind, it will be interesting to see what the trading halt pertains to.
Accelerated mid-term strategy
APT’s appeal belies the platform for innovative business models that continue to resonate with consumers and retail partners alike. By adhering to such a strategy, the company remains focused on global merchant and customer growth, program innovation and scaling global infrastructure and has proposed an increased appreciation of the size of global market opportunity and confidence in a differentiated value proposition.
Reportedly, APT executives have confirmed that US-scale up opportunity is obvious, supporting an accelerated international investment opportunity. In doing so, shareholder value will be maximized through a means of focusing on merchant and customer growth across a mid-term three-year plan. A strong growth strategy will essentially lay the foundation of mid-term value creation, with this being the means behind the trading halt. Further investing in this strategy, ATP’s operating leverage and earnings growth for FY2022 has since been revised, targeting over A$20 billion gross merchandise volume and a net transaction market of 2%.
In short, Afterpay’s mid-term targets and strong international growth is expected to require incremental capital in order to support the following:
- The funding of Afterpay’s mid term target of A$20b
- Accelerated gross merchandising volume growth in the US while the UK launch and continued investment in Australia and New Zealand under the mid-term plan continues.
- Investment in enterprise merchant acquisition and scaling SMB capability ahead of the curve.
Afterpay is undertaking a fully underwritten institutional Placement of new shares in Afterpay (New Shares) to be eligible to investors in order to raise a minimum of $300m to support the fintech firms mid-term strategy. Subsequently, Afterpay is issuing a fixed 13.8m of New Shares.
The pricing, however, will be facilitated by an institutional bookbuild, with an underwritten floor price of $21.75 per New Share. The underwritten price floor represents, thereabouts a 10% discount to its current share price of $24.75. The final pricing guidance and allocation decisions will be determined by Afterpay executives, comprised solely of Independent Non-Executive Directors. In doing so, New Shares issued under the Placement will rank equally with Afterpay’s existing shares.
Afterpay’s shares will remain in the aforementioned trading halt while the placement is conducted. Normal trading in Afterpay shares is scheduled to continue on the 12 June 2019.
To work in conjunction with the fully underwritten institutional Placement of new shares, Anthony Eisen, Nichola Molnar and David Hancock will take part in the selling of 2.05m, 2.05m and 0.40m shares respectively. The informal acquisition, otherwise referred to as the Secondary Sell-down will be allocated to two US cornerstone investors, Tiger Management and Woodson Capital. This alleged Secondary Sell-down accounts for approximately 1.9% of total shares outstanding in Afterpay. The pricing of the Secondary Sell-down will act in accordance with the determined price under the bookbuild for the institutional Placement.
Mr Eisen and Mr Molnar will each remain Afterpay’s largest shareholders with admissible interest of 20.5m shares each, comprising an estimated 8.1% of issued capital, following the Secondary Sell-down and institutional Placement. Mr Eisen, Mr Molan and Mr hancock have each confirmed that they will not sell any additional shares until at least 120 days have passed.
Prior to any Secondary Sell-down, the institutional Placement must be fully subscribed by eligible investors.
The Share purchase plan
A constructed share purchase plan (SPP) will follow the Placement with eligible Afterpay shareholders in Australia and New Zealand given the opportunity to acquire additional shares in Afterpay. Under terms of Afterpay Touch, the SPP will not be underwritten.
Furthermore, Shareholders on the Afterpay register with a registered address in Australia or New Zealand, will, at 7:00pm (AEST) on the 7th of June 2019, be entitled to subscribe for up to $15,000 worth of Afterpay securities through the SPP entitlement. With the SPP aiming to raise approximately $30m, Afterpay may decide to scale-back applications under the SPP at its absolute discretion.
Given that fintech firms are capital intensive models that hinge on market conditions and growth initiatives, Afterpay Touch Group’s trading halt is interesting to say the least. Considering the year-on-year bullish trend Afterpay has to offer, the fulfilment of such growth initiatives can facilitate the firm’s expansion. However, it goes without saying that should the capital raising fall short of its intended goal, it may very well put an end to Afterpay’s success story.
By Jordan Nikopoulos
Click here for a 7 days access to our Lotus Blue Portal.