What happened

CBAK Energy Technology (NASDAQ:CBAT) stock ran up 84% in a day on Monday -- but what a difference a couple of days make! Shares of the Chinese lithium battery maker crashed yesterday as investors, who profited mightily on Monday, began cashing in their winnings. Today, CBAK looks to be dropping even more, down 19.5% as of 11:40 a.m. EST.

And this time, CBAK has only itself to blame.

Chinese flag superimposed on a stock market chart

Image source: Getty Images.

So what

In an SEC filing late Tuesday, you see, CBAK revealed that, in an effort to lighten its $33.5 million debt load, it has entered into an agreement with a creditor (to which it owes $11.2 million) to trade shares for debt.

At first glance, that sounds like a good deal. CBAK shares have run up 1,885% in price over the past year. Trading inflated-price shares for a big debt reduction sounds like a smart business move, but here's the thing: CBAK is not trading shares worth nearly $10 apiece for debt reduction, as one might have expected based on yesterday's $9.73-a-share closing price. Instead, CBAK is handing over its shares at an exchange price of $3.50 per share.  

Now what

At this dramatically lower valuation, therefore, CBAK is going to have to give up 3.2 million shares to cancel its debts, diluting its existing shareholders by 4.8% in exchange for growing its enterprise value by a mere 1.8%.

Suffice it to say this does not look like a smart business move, and it's not good news for CBAK shareholders at all. While management tried to make the deal sound fair, by pointing out that as recently as Nov. 11, its shares were selling for only $3.48 (about the same as the price of the exchange), I fear all it's really accomplished by making that argument is remind shareholders that CBAK shares that cost nearly $8 apiece today may very well be worth less than half of that.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.