By Nigel Somerville, the Deputy Sheriff of AIM | Thursday 27 October 2016
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Some good news, I think, for shareholders in AIM-listed medical technology firm Angle (AGL) which one might sense will be greeted with the same relief as the moment when an unwelcome guest leaves the house.
This morning it was announced that:
….Andrew Newland, Chief Executive of ANGLE, has purchased 1,350,000 ordinary shares of 10p each in the Company ("Ordinary Shares"). These shares were purchased at a price of 57 pence per share in accordance with the sale and repurchase agreement (the "Agreement"), as described in the Company's announcement of 12 November 2014.
The Agreement has now terminated and Mr Newland's legal and beneficial interest in the Company reverts to the same level as it was prior to the Agreement, being 7,054,686 Ordinary Shares, now representing 9.43 per cent of the Company's issued share capital.
This, of course, refers to Mr Newlands’ deal with Equities First LLC in which he handed over a stack of shares and EFH handed over cash. Quite who is the lender and who is the borrower in this kind of arrangement is something of a moot point, but the good news for shareholders is that the arrangement has reached its maturity date and the shares are safely back in Mr Newlands’ hands.
Under these EFH deals, shares are handed over apparently as security for a loan and EFH simply dumps them. Interest is charged on the “loan” and there are margin-call clauses such that if the shares fall sharply enough then further shares or cash can be demanded, but which appears not to be returnable and thus it is economic madness to pay up. Since the “loan” is non-recourse, the “borrower” can simply walk away and EFH (having lent out perhaps 75% of the value of the shares) pockets the difference. The oddity over who is the lender is this: the person handing over the shares can demand them back and EFH is obliged to return them. But EFH can demand its cash, but the “borrower” can walk.
To this simple mind, if I borrow something I have to give it back. Here it is the shares which appear to me to have been borrowed.
We have now identified eight UK-listed companies which have been mired in the EFH controversy and the share price performance record of those firms has, in the round, been abject. Indeed, we know that following collapsing share prices Rob Terry and his merry gang walked on their EFH “loans” involving Quindell (QPP) – now Watchstone (WTG), as did Ronald Duncan at Cloudbuy (CBUY).
We are unsure about what ever happened to Andrew “Piggy” Austin’s deal from his ill-fated days at Igas (IGAS), but Joel Leonoff at Paysafe (PAYS) – formerly Optimal Payments (OPAY) – and Drew Nelson at IQE (IQE) still have theirs, as does Robert Adair at fully-listed Urban&Civic (UANC). And, of course, we would imagine that Eddie Truell’s deal (only announced a few days ago) involving shares in Tungsten (TUNG) is still going.
But shares in all but two of the above are well down on the prices as the time the deals were struck. The two exceptions are IQE and Paysafe (ex-Optimal Payments) although the latter is harder to calculate following a rights issue.
So five out of seven (we will watch the performance of the eighth, Tungsten, before passing judgement there) have seen declines – calamitous ones in the cases of Watchstone (Quindell), Igas and Cloudbuy.
I daresay that “lending” out cash on a loan-to-value of between 65-75% in return for shares which you then sell at full price works very well if you later buy that stock back at a much reduced price in order to return them. So the deal with Angle’s head honcho has been good business for EFH – and given it a chance to demonstrate its commitment to returning the shares at the end of the deal.
We assume that the same level of service will be offered, for example, when EFH has to return shares in IQE which are up sharply. Of course, if EFH did not immediately dump those shares and have held them throughout as collateral, then there’s nothing to worry about. And I’m sure that those fine fellows will fully honour their contracted commitments in any case, even if it is less certain as to who ultimately foots any bill for any losses which might have been incurred.
Meanwhile, a bit of a shadow has been lifted this morning from shares in Angle. Without knowing much about that company I’ll refrain from passing judgement beyond saying that it is now off the bargepole list.
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