Shares of Uxin Limited (NASDAQ:UXIN), a Chinese used-car e-commerce company, absolutely soared on Thursday after the company disclosed a possible $300 million investment. As of 1 p.m. EDT, the stock was up a whopping 48%, but it had traded as much as 64% higher earlier in the session.
According to the official press release, two different Asian funds have signed binding term sheets with Uxin. Negotiations are ongoing, but the eventual agreements could add $300 million to Uxin's coffers. According to Yahoo! Finance, the company's market capitalization is approximately $600 million right now. Therefore, $300 million is extremely consequential for a company this size.
While investors appear to be very excited about this news, I would urge caution. It's very unusual for a company to disclose a deal like this before the details are squared away. This $300 million will potentially come from convertible notes. But since the details are unknown, shareholders are missing two crucial details: the conversion price of convertible notes and the amount of new shares that will be added to the total share count.
This means it's impossible to fully appreciate today's news because it's missing important context. If the notes don't price well (perhaps even below where they trade right now), that would be a bad sign. Furthermore, if a meaningful amount of shares are added (perhaps even doubling the share count), then it would be hard to see this as a net positive for current shareholders.
Therefore, keep an eye out for eventual details to Uxin's $300 million deal. They matter.