ShareProphets released an article today, which goes some way to explaining the unusual £17m loan.
It basically seems to work like this: QPP needed working capital to the tune of £17m. It entered into an agreement with “Yorkville”. In return for issuing 97,142,857 ordinary shares at 17.5p to Yorkvillle, Yorkville will sell off the shares into the market over the course of a year, apparently in monthly tranches, and give the proceeds to QPP. Presumably Yorkville were paid a fee for this, and have the discretion to retain the shares for their own account if they believe the shares are undervalued. They’ll still have to remit an equivalent amount to QPP.
Now we can see where the problem is; and some of my analysis in previous posts appears to have been correct. If the share price declines, QPP will get less money. That explains why QPP tweeted extensively trying to get the price up. They wanted as much money as possible. It also explains the “loss” on the derivatives contract – it’s basically a write-down of money they wont receive due to the decline in share price.
This is a big problem, because, with the reduction in share price, the placing may now not provide QPP with sufficient working capital. So my presumption previously was correct: if shorters can engineer a very low share price, then the company may have liquidity problems, further playing into the shorter’s hands.
Furthermore, in previous posts, I speculated that Yorkville take no risk when they sell shares on the market, and are therefore free to dump them indiscriminately. This now appears to be a correct presumption. Such an action may actually benefit Yorkville if they wish to retain a proportion of the shares, because the lower the price, the less the cost to them. QPP seem to have come to an arrangement recently for Yorkville to stop this process for now.
There’s more! By stopping the sales process, how will QPP finance its working capital requirements? No share sales, no money; but any share sales they do make will likely be on decreasingly attractive terms.
I can only guess that QPP will need to raise more funds in the near future in order to make up the shortfall in their working capital. Seeings as the funding arrangement was, in the first place, a method of last resort, raising more money will presumably be even more problematical. How will they raise funds? Through a bank, or by another placing? Both options look like they are going to be expensive, assuming that they could even get such funding. What’s more, any fundraising seems likely to be perceived by the Market as very desperate. The Market is already unhappy with the level of fundraising as it is.
This could get really interesting! No wonder Simon Cawkwell is short.
Edit: corrected share price