Market Commentary: Premiere Horizon Alliance signs options agreement to access equity financing
Mining, tourism and real estate company Premier Alliance Horizon [PHA 1.42 3.65%], which was recently bought by Marvin Dela Cruz and his friends, signed a “put option contract” with LDA Capital Limited (LDA) which, according to the disclosure, provides PHA 2.5 billion pesos in “committed share capital over the next thirty-six months”.
The put option agreement gives PHA the right, but not the obligation, to sell shares of PHA to LDA. The amount of shares that it will sell and the price of those shares are governed by a formula that is timed to the date of the notice that PHA provides to LDA for each sale.
When PHA notifies LDA that it is selling shares to LDA, the number of shares it will sell is based on the average number of shares traded over a period of time prior to the sale, and the price will be 90% of the volume. -weighted average price for the same period. PHA also sold out-of-the-money call options to LDA, where LDA bought the right, but not the obligation, to pay P2.26 / share for up to 133 million PHA shares at any time during the price. the next three years.
Together, the put option agreement and the call options give PHA access to approximately 2.8 billion pesos in equity. Under the agreements, LDA’s potential participation under this agreement is capped at 19.9%.
This is not the first time that LDA, a lender specializing in “distress and event financing,” has signed an exotic option financing agreement with a local company.
Barely a year ago Roxas and Company Inc [RCI 1.03 1.98%] signed a P800m put option agreement with LDA. At the time of signing the deal, RCI was trading at around P1.78 / share. Immediately after the announcement, the stock price fell off a cliff, losing 34% of its price in 10 weeks after the deal. After a brief Christmas rally, the stock continued its losing streak and is currently trading around one peso. Now, the performance of RCI shares is not a roadmap of what we should expect with PHA, and the downward movement in price was more or less the continuation of a general downtrend that started in 2018; the point here is that it’s not a big sign.
At best, the company ends up diluting shareholders by selling cheap shares to a troubled lender who won’t add any value to the boardroom. Action was halted when the announcement was made on Wednesday, fell when the stop was lifted, and then rose a bit yesterday to close about one percent below the price it was trading at before the announcement.
I guess we’ll just have to watch and see what PHA does with this. They say the proceeds will go to working capital for its various projects “and fentech such as SquidPay”; if I were a shareholder, I would have a lot of questions.