Home Page : www.otcjournal.com
Email Questions or Comments To:
editor@otcjournal.com
To
OTC Journal Members:
 |
Xinhua Sports (NASDAQ: XSEL):
Roughed Up By Financing Announcement |
|
Today's was not a good day for shareholders
on Xinhua Sports and Media (NASDAQ: XSEL) as the stock dropped
27% when the company disclosed it is in the process of raising a relatively
substantial amount of capital at $1.36 per share. So, of
course, the stock immediately went to $1.36 from $1.70, and
then a bit lower.
I was blind sided by today's news.
I knew the company was in discussions to raise additional capital, but
it had not occurred to me XSEL would be willing to sell shares at
any sort of significant discount to the range the stock has been trading
in.
Nevertheless, it appears to be exactly
what the company is doing. Based on a press release that came out today
at about 1PM Eastern, XSEL has entered into a financing that, in
the short term, will put about $7.5 million into XSEL's
bank account at the $1.36 level.
While this is a major short term
technical problem for the market, there's a longer term problem the stock
might wrestle with as well. If I'm reading the press release correctly,
it would appear the company is issuing 5.5 million shares at $1.36,
5.5 million warrants convertible at $1.36, and 5.5 million warrants convertible
at $1.95.
If I understand this correctly, the
structure of this financing is a very sharp double edged sword. Issuing
5.5 million shares at $1.36 is bad enough is you're a shareholder at a
higher price. However, then there's the 5.5 million warrants convertible
at $1.36- those warrants could act as a "governor" on the stock price,
and prevent it from moving much higher than about $1.50.
Now, here's the other edge of the
sword. Those warrants represent an opportunity for XSEL to raise
more capital. When a warrant is exercised, the money goes directly to the
company. However, those warrants won't be exercised unless the stock trades
with volume and liquidity. Therefore, the company has a lot of incentive
to get the stock behaving much better.
Here's what's not clear. I'm not
sure from the press release the financing is actually closed. The stock
has absolutely cratered today, and is now trading below the proposed financing
level of $1.36- actually down to $1.28 as I write today's
edition.
If the financing gets derailed- for
whatever reason- the stock could pop back up. It's all about as clear as
Texas mud. The only thing that is crystal clear to me is the market's knee
jerk reaction to the news of the financing. In the short term, the market
hates it. If the transaction is closed, sellers might be coming out of
the financing shares and simply "flipping" the stock to keep the warrants.
I don't have enough facts to judge
is this is a problem or opportunity yet. If you're a shareholder, my advice
would be to not sell at this time. Wait a few days and see what happens.
Anytime a stock sells off like this, there is always some sort of immediate
bounce back.
Today, I wouldn't buy XSEL
or sell XSEL. Don't panic. Let's wait a few days and see how this
plays out. In case you didn't catch it, here is the complete text of today's
news.
|
Xinhua Sports
& Entertainment Limited Raises $7.5 Million in Registered Direct Offering
BEIJING, Oct. 26 /PRNewswire-Asia-FirstCall/
-- Xinhua Sports & Entertainment Limited ("XSEL" or the Company"; Nasdaq:
XSEL), a leading sports and entertainment media company in China, announced
today that it has entered into definitive agreements to sell 5,514,705
American depository shares ("ADS") at a price per ADS of $1.36 in a registered
direct offering to several select institutional investors, representing
gross proceeds of $7.5 million.
Investors will also
receive two series of warrants to purchase up to an aggregate of 14,889,703
class A common shares of the Company (equivalent to approximately 7,444,851
ADS). The Series A warrants to purchase up to 3,860,293 class A common
shares (equivalent to approximately 1,930,146 ADS) will have an initial
exercise price of $0.975 per common share ($1.95 per ADS) and are exercisable
at any time commencing six months after the closing date and on or prior
to the fifth anniversary of this date. The Series B warrants to purchase
up to 11,029,410 class A common shares (equivalent to 5,514,705 ADS) will
have an initial exercise price of $0.68 per common share ($1.36 per ADS)
and are exercisable at any time commencing on the closing date and on or
prior to the six month anniversary of this date.
The closing of the offering
is expected to take place on or before October 29, subject to the satisfaction
of customary closing conditions.
The Company plans to
use the net proceeds from the offering for working capital purposes.
The class A common shares
represented by the ADSs and the warrants are being offered by XSEL pursuant
to an effective shelf registration statement filed with the Securities
and Exchange Commission and declared effective on September 16, 2009. Rodman
& Renshaw, LLC, a wholly owned subsidiary of Rodman & Renshaw Capital
Group, Inc. (Nasdaq: RODM - News), acted as the exclusive placement agent
in the offering.
This press release shall
not constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of the securities in any state or jurisdiction
in which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such state or jurisdiction.
The ADSs and the warrants may only be offered by means of a prospectus.
Copies of the prospectus supplement and accompanying base prospectus relating
to the offering can be obtained from the SEC's website at http://www.sec.gov
.
About XSEL
Xinhua Sports & Entertainment
Limited ("XSEL"; NASDAQ: XSEL) is a leading sports and entertainment media
company in China. Catering to a vast audience of young and upwardly mobile
consumers, XSEL is well-positioned in China with its unique content and
access. Through its key international partnerships, XSEL is able to offer
its target audience the content they demand -premium sports and quality
entertainment. Through its Chinese partnerships, XSEL is able to deliver
this content across a broad range of platforms, including television, the
Internet, mobile phones and other multimedia assets in China. Along with
its integrated advertising resources, XSEL offers a total solution empowering
clients at every stage of the media process linking advertisers with China's
young and upwardly mobile demographic.
Headquartered in Beijing,
the company employs more than 1,000 people and has offices and affiliates
in major cities throughout China including Beijing, Shanghai, Guangzhou,
Shenzhen and Hong Kong. Xinhua Sports & Entertainment Limited's shares
are listed on the NASDAQ Global Market (NASDAQ: XSEL - News).
For
more information, please contact:
XSEL
Media Contact
Joy Tsang
Tel: +86-10-8567-6050
Tel: +86-136-2179-1577
Email: joy.tsang@xsel.com
IR Contact
Edward Liu
Tel: +86-10-8567-6061
Email: edward.liu@xsel.com
American
Capital Ventures
Howard Gostfrand
Tel: +1-305-918-7000
Toll free: +1-877-918-0774
Email: info@amcapventures.com
|
Home Page : www.otcjournal.com
Email Questions or Comments To:
editor@otcjournal.com
|
