LONDON (Alliance News) - Cloudbuy PLC and ANGLE PLC Wednesday clarified recent deals in which top executives used shares as security for loans from Equities First Holdings LLC to fund house moves, as scrutiny of unusual share transactions involving the US stock loan company increased.
The news comes as the Daily Mail reported that the UK's Financial Conduct Authority is set to investigate a series of announcements made by Quindell PLC regarding a stock-for-loan deal done by three of its executives with Equity First Holdings.
The FCA declined to comment to Alliance News. The London Stock Exchange wasn't immediately available for comment.
The mechanics of the loans being provided by Equities First are the same in each case: it takes shares as a security for a loan and takes a percentage of the value as well as a financing arrangement fee. Equities First can legally do as it pleases with the shares, but pledges to hold them and not use them for short selling. The loanees are required to buy back the shares once the loans mature.
In a statement, ANGLE said it wanted to provide more information about a deal Chief Executive Andrew Newland did on October 21, transferring up to 3.5 million shares to Equity First as security for a loan facility in connection with moving house.
ANGLE said that under the sale and repurchase agreement, Newland transferred the legal and beneficial interest in 1.35 million shares to Equities First at a discount. He got a payment equal to 62% of the three-day average mid-price per share less a financing arrangement fee of 2%.
He's obliged to buy back the shares at 67% of the starting market price once the loan reaches maturity. However, he may also have to cover margin calls for big fluctuations in the stock price: if the value of the transferred shares falls to 49.6% or less of the starting market price, Newland will have to stump up more shares or cash to cover the difference.
The deal means Newland now holds just over 5.7 million shares with voting rights, or 12.61% of the company's share issue, although his overall share interest is nearly 7.1 million shares, a 15.59% stake.
"Andrew has entered into this finance arrangement to bridge the purchase and renovation of a new house. Andrew believes strongly in the future value of ANGLE and does not want to sell his shares into the market. This facility enables him to return to his original position once the facility is repaid," ANGLE Chairman Garth Selvey said in the statement.
CloudBuy, meanwhile, said Chairman Ronald Duncan had pledged up to 4.5 million shares to Equities First in return for a loan that is also partly being used for a house move.
It said Duncan transferred 2.25 million shares in return for GBP533,490.30, which he used to buy and rennovate his new house, and he intends to use the rest of the loan by transferring a further 2.25 million to Equities First. It didn't say what the balance will be used for.
Cloudbuy didn't set out the exact terms of the transfer, but said that Duncan has agreed to buy back all the transferred shares at 27.16 pence each. The deal also includes a margin call whereby if the value of the transferred shares falls below 19.5 pence, Duncan will have to either terminate the deal or put up more shares or cash.
"In order to minimise disruption around the move, we put in place a facility which would allow us to remain in our existing house whilst the renovation was carried out, following this we will sell the existing house and release the equity," Duncan said in a statement.
Duncan and his family now have hold just over 18.8 million voting shares in cloudBuy, about 15.7% of the company's share issue, and this will fall to nearly 16.6 million shares when he transfers the second tranche of the shares for the loan. He still has a total interest in nearly 21.1 million shares, or a 17.6% stake.
ANGLE shares were down 8.6% at 75.14 pence midday Wednesday, while cloudBuy was down 6.5% at 33.66 pence.
Earlier this week, Quindell was forced to explain a recent share dealing by three of its directors that also involved putting up shares as security in return for a loan from Equities First. In this case, a portion of each loan was used to buy more Quindell shares.
On November 5, Chairman Robert Terry, Finance Director Laurence Moorse and Non-Executive Director Steve Scott bought nearly 1.6 million shares in total, using funds from loans provided by Equities First, which describes itself as "a pioneer in stock loans". A company controlled by Scott, Bickleigh Ridge Ltd, also bought 175,000 shares using the same mechanism, it was announced two days later.
In this case, Equities First had paid a sum equal to 67% of the three-day average market value per share less a financing arrangement fee of 3% for the shares transferred as security for the loan. Terry transferred 8.85 million shares, Moorse 200,000 shares and Scott 1.4 million.
The Quindell directors may also be required to meet margin calls if the Quindell share price fluctuates wildly. If the share price falls to 80% or less of the value at the time they were transferred to Equities First, then they'll have to transfer more of their holdings to the US company or to provide cash to satisfy margin calls, Quindell said.
Terry used GBP1.2 million of the GBP7.5 million he was loaned to buy 1 million more Quindell shares, while Moorse used GBP61,500 of his GBP168,714 proceeds to buy 50,000 more shares and Scott used 861,647.50 of his GBP1.1 million loan to buy a further 525,000 shares.
Quindell didn't say what the remaining portions of the loans were bring used for.
Terry has said the directors did the deal because they felt Quindell's shares were undervalued and the board was confident the company would meet its full-year market expectations and its longer-term prospects.
As the Quindell share price slid on the news, Terry subsequently went on to buy 300,000 shares in the open market, and was joined by Chief Executive Robert Fielding. Fielding, who wasn't one of the directors taking part in the loan deal, also reiterated that the purchase signalled his confidence in the company's prospects.
Quindell shares were down a further 8.1% to 69.40 pence Wednesday. The stock has now declined 55% in the past month, and is down 42% since the company gave the additional details about the director loan deals.
A Quindell spokesperson said that the drop was net yet big enough to trigger a margin call on the transferred shares.
Other AIM-listed companies whose directors are known to have engaged with Equities First as part of their share dealings are IQE PLC and Igas Energy PLC. Both these deals were the same as the Quindell deal in that the loans were used to buy more stock in each company.
IQE, which supplies advanced semiconductors wafer products, said on October 14 that Chief Executive Officer Drew Nelson, Chief Financial Officer Phillip Rasmussen and Chief Operating Officer Howard Williams acquired a total of 3.3 million shares in the company with a the help of a loan from Equities First secured with some of their existing holdings.
Meanwhile, IGas Energy PLC said on January 16 that Chief Executive Andrew Austin bought 300,000 shares in the company, funded with a loan from Equities First that was secured by some of his existing holdings.
IQE and IGas were not immediately available for comment.
IQE shares were down 1.0% at 16.58 pence Thursday, and IGas was down 5.3% at 63 pence.
By Steve McGrath, Sam Agini and Hana Stewart-Smith; stevemcgrath@alliancenews.com; @stevemcgrath1
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