China-based online auto insurance and after-sales services company SunCar Technology (SDA 6.12%) drifted far back in the slow lane this week, at least as far as Mr. Market was concerned. The company's stock price declined by just under 28% over the period, according to data compiled by S&P Global Market Intelligence, following its announcement of a secondary share issue.
A $21 million stock issue
On Tuesday, SunCar divulged that it is floating nearly 2.6 million of its Class A ordinary shares at a price of $8.18 per share for total proceeds of $21 million. The buyers are a group of "certain institutional investors" who were not identified.
The buyers will also issue warrants to those investors, granting them the right to buy up to more than 3.85 million of those shares. The exercise price is $9 apiece, and the term of the warrants is five years.
SunCar said it will use its share of the issue's proceeds "for working capital and general corporate purposes."
The company, which offers a suite of car owner services through an online platform, has recently gone in two directions with its headline financial figures. In the first half of this year, its revenue saw a rather notable 22% year-over-year decline (to just under $125 million), yet its net profit increased more than fivefold to almost $5.7 million.
It's dilution time
If SunCar issues that full number of warrants and they're exercised, its share count would expand by nearly 6.5 million. At the moment, it stands at slightly over 35.9, so the issue could end up being fairly dilutive to existing investors. No wonder they sold off the stock this week.