For the second time in less than a month, Chinese automotive battery-maker CBAK Energy Technology (CBAT -5.00%) is trading shares for cash, and diluting its shareholders in the process. Investors aren't happy about that -- at all -- and CBAK shares are down a staggering 14.4% as of 10 a.m. EST Tuesday morning.
It was just 20 days ago that CBAK last pulled a stunt like this, trading 3.2 million shares to one of its creditors in repayment of $11.2 million in debt, but valuing its shares (which were worth nearly $10 at the time) at just $3.50 each for purposes of the debt exchange.
Today, CBAK struck a somewhat better deal, announcing that it will be selling more shares (9.5 million) but for a better price ($5.18 each). To sweeten the deal for the private investor that will be buying the new shares, CBAK will also award warrants to purchase an additional 3.8 million shares for $6.46 each, the price CBAK closed at on Monday evening.
CBAK reserved the right to redeem the warrants for less than a penny apiece if its stock price hits $16.15 -- but the investor can easily avoid tripping this trigger by exercising its warrants after the stock hits $16.15, but before it has held at that level for "seven consecutive trading days." In that case, it would still reap a nearly $40 million profit.
It's understandable that investors, who held CBAK stock that they thought was worth $6.46 last night, are not pleased to learn that someone just got the chance to buy those shares for a 20% discount -- nor that they're about to be diluted out of about 17% of their ownership interest in the company. Still, the news isn't all bad.
The $6.46 strike price named in the warrants deal suggests CBAK's new investor might think the stock is still worth that much. Moreover, the $49 million cash infusion CBAK will receive from this stock sale will be enough to totally pay off CBAK's remaining debt, and with some money left over for "general working capital purposes" besides. And there could be more money coming in when the warrants get exercised.
It's a small consolation for suffering 17% stock dilution, but at least it's something.