By Nigel Somerville, the Deputy Sheriff of AIM | Monday 27 February 2017
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.
AIM-listed Servision (SEV) has some questions to answer. I hope it is currently answering them to its Nomad Allenby Capital and that we will have a statement shortly. Having announced a funding deal with US-based Cascade (which has nothing to do with Bill Gates) which seemed way too good to be true – at over 400% of the previously prevailing share price – backed by a personal guarantee from chairman and CEO Gidon Tahan, the nature of that guarantee became rather murky on Friday when it emerged after-hours that he had put up his entire shareholding as security. On what terms?
The maths would suggest that the market value of his shares when the funding package was announced, added to the first tranche of shares to be issued (provided the share price does not collapse) would cover the cost of the first round of cash heading into Servision’s coffers.
So the questions are these:
1) does Mr Tahan continue to hold the shares in question and will this remain the case until the guarantee is either called in or expires?
2) under what circumstances does Cascade take control of the shares – or has it already?
3) under what circumstance is Cascade free to sell the shares, or has it already?
It surely can’t be that difficult for Allenby to check the shareholder register and read through the paperwork for the funding package, can it?
If it turns out that Mr Tahan still has the shares in question in his own name, with full voting rights, and Cascade can only call in and sell the shares if/when Servision defaults then fair enough.
But if it turns out that the shares have in fact been transferred to the white knight funder which is free to sell the stock when it pleases then that is a very different matter.
The cynic might observe that the after-hours RNS on Friday evening – when the City had gone home for the weekend – stated that the shares had been put up as security should Servision default on the terms of its funding package. But the shares were put up the day before the RNS announcing the package – which stated that the first round of cash would be forthcoming in five business days.
That, of course, would allow plenty of time for settlement before Cascade had to pony up the first line of cash if the shares were in fact transferred and Cascade was selling them.
The problem here is historical issues raised when a series of AIM-listed companies failed to report the full terms of funding packages between their directors and Equities First Holdings LLC when the transactions were first announced.
It was not until after a great deal of pressure had been brought to bear by this website that it emerged that the lines of shares in question had in fact been transferred in a series of non-recourse sale and repurchase agreements. But in most cases the announcements of these transactions were tied in with announcements that the directors concerned had bought (far, far) smaller lines of stock and that therefore their interests had gone up when the truth of the matter was, in effect, a large sale.
It is in that context that question are being raised of Servision’s RNS announcements of last week. The regulation of the AIM market was shown to be a complete shambles by the EFH debacle. We just want to be sure that there is not a similar situation brewing here.
We would like to be sure that the truth of the matter is not that Mr Tahan’s shares were to be sold as part of Cascade’s efforts to raise the cash being provided, for that would suggest that the whole thing was just a super-sized exercise in spoofing the market.
There is, of course, another possibility: that there is some doubt about Servision issuing the shares at all and that Mr Tahan’s shares are there as security simply to cover the (surely unlikely) event that the new shares are not freshly minted in line with the terms of the funding deal. Who would get the 11.4p per share in that event, I wonder? Of course, that would trigger a full stewards’ so I just can’t see it happening. Surely even CloudTag (CTAG) wouldn’t dare try that one!
The market needs clarification as to the full terms of the dealings between Servision, Mr Tahan and Cascade. I do not believe that what has been served up so far is at all adequate. The current share price of Servision – having fallen back from a peak of something like 6.5p on the funding RNS to the current 4.375p, as against the 11.4p Cascade is apparently paying for the first line of stock it is subscribing for – is telling you that the market is less than convinced by what it has been told.
Come on Allenby, let’s have a statement and get the matter cleared up once and for all. The silence is doing nobody any favours.
Oh, and whilst Allenby is getting to the bottom of all of that, it might wish to get its charge to update its AIM Rule 26 web pages. The shareholdings section, as can be seen from the screenshot below, does not appear to have been updated since March of last year and methinks AIM Rules say it has to be revised at least every six months. Any changes will be interesting to note.
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