Sweden listed P2P lending provider TrustBuddy announced this morning that its Board of Directors has decided to call an Extraordinary General Meeting on September 18, 2015 to vote on a new share issue with preferential rights for shareholders in TrustBuddy of around SEK 61 million before issuing costs (“Preferential Rights Issue”). The Preferential Rights Issue is 100 percent underwritten with subscription and issue guarantees. Furthermore, those who subscribe to the Preferential Rights Issue will be entitled to one (1) warrant for every three (3) shares subscribed. The Board of TrustBuddy AB (publ.) also proposes that the Extraordinary General Meeting votes to approve a directed issue of up to 200 million shares.
The subscription price for the Preferential Rights Issue is SEK 0.15 per share, which amounts to an issue liquidity of approximately SEK 61 million before issuing costs and comprises 405, 546,722 shares.
At the end of Q1 2015, TrustBuddy had a total of 405,546,722 shares outstanding (before dilution). This implies that the number of shares after the preferential rights share issue and the directed issue will increase by up to 605,546,722 and amount to up to 1,011,093,444 shares, i.e. 2.5x the previous amount. That’s a massive dilution.
The registration date for the right to participate in the Preferential Rights Issue with pre-emption rights is October 9, 2015. The subscription period runs from October 14, 2015 up to and including October 30, 2015. Subscription commitments of approximately 34 percent and underwritten guarantees of approximately 66 percent of the Preferential Rights Issue have been received. For each whole three (3) newly subscribed, paid and allotted shares in the Preferential Rights Issue one (1) warrant is accrued free of charge. Every warrant entitles the holder to subscribe to one (1) new share at a subscription price of SEK 0.18 per share during the subscription period that runs from October 3, 2016 until October 19, 2016.
The intention is to make a directed share issue of up to 200 million shares following the Preferential Rights Issue. The directed issue will be priced at the market rate and directed to selected investors who have expressed an interest in subscribing to shares in the Company.
The Board’s proposal is subject to the Extraordinary General Meeting on September 18, 2015 also taking a decision on changing the Articles of Association in accordance with the Board’s proposal.
Background and motivation for the Preferential Rights Issue, according to Trustbuddy:
“TrustBuddy has been operating since 2009 and has enjoyed strong growth ever since. The Company’s field of activity, P2P loan solutions, is a relatively new segment of the loan market and was initially a relatively unknown area. In recent years, however, the P2P market has grown significantly and several actors have emerged on the market. This has conferred a greater legitimacy to the market and a regulatory framework has begun to form, driven by these new conditions.
In recent years, the Company has undergone a comprehensive restructuring which has seen the business evolve in order to manage additional growth and to effectively meet rapidly growing demand. Because the Company’s organizational structure was not optimal during this growth phase, the Company has undergone thorough structural changes and, furthermore, following the recent acquisition of the Netherlands-based P2P loan provider Geldvoorelkaar, the Company requires additional capital to continue to grow.
Against this background, the Board of TrustBuddy has decided to call an Extraordinary General Meeting on September 18, 2015 to vote on a rights issue worth approximately SEK 61 million. The capital will be used to a) finance the acquisition of Geldvoorelkaar; b) repay a short-term financing arrangement; and c) ensure the Company’s capital requirements until a cost reduction program is fully implemented.”
No doubt that the news of the new share issue will be hard to digest by the market.
On a more positive note, TrustBuddy also announced today that its Board of Directors has appointed Philip Mikal as Chief Executive Officer effective September 1, 2015.
“This is the perfect time for Philip Mikal to join TrustBuddy as the Chief Executive Officer. We’ve selected a strong leader to complete the final phase of TrustBuddy’s restructuring process and start the next chapter of the company’s life cycle,” said TrustBuddy Chairman Simon Nathanson.
“Philip is unique in his ability to translate vision and strategy into a team-oriented, results-driven approach. He has an extensive background in financial technology and is an expert in payment systems. Philip’s vision, strategy and execution track record make him the ideal leader to grow TrustBuddy’s business through product and geographic expansion.”
Says Mr Mikal: “TrustBuddy is one of the most established peer-to-peer lending platforms in the world, having launched in 2009. With their vast transaction database and my background in international credit and lending markets, I am convinced that the right conditions are in place for a fantastic collaboration. I am thrilled and humbled to be joining the company. I look forward to be working with its dedicated employees, board, and shareholders to build innovative products and financial services that both lenders and borrowers around the world love.”
Linus Lönnroth will hand over the CEO responsibility and resume as the CFO effective September 1, 2015.
“I am pleased with the positive impact Linus has had during the restructuring phase of TrustBuddy and welcome Linus back to his original role” said TrustBuddy Chairman Simon Nathanson.
Nordic Investor has so far no information on Mr Mikal but TrustBuddy describes him in today’s press release as follows:
“Philip has been focusing on payments and credit-related offerings since 2007 and is passionate about the potential of alternative finance. He has strong experience in increasing business agility through improved development processes and planning.
Philip recently served as Vice President of Global Financial Services at Klarna, where he worked with a world-class team to introduce credit products and new core platforms that enabled the business’ global expansion. Before Klarna, he was Chief Technology Officer at online payments company ChargeSmart, Inc., leveraging more than 10 years of experience from software development roles in Silicon Valley.”
Obviously we expect the TrustBuddy share to be under renewed pressure following today’s announcement. The press releases did not contain any update on the ongoing license application in Sweden, which could have mitigated a negative share price reaction somewhat. We are taken by surprise by the new issue and will review our estimates. We welcome the appointment of a new CEO, as a clear and leadership is all important.