The AMF alerts shareholders to dilutive financing
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(News Bulletin 247) – Noting the resurgence of reports and complaints from individuals, the Autorité des marchés financiers has analyzed the stock market behavior of 69 companies that have had recourse to highly dilutive financing for shareholders. More than 80% of these companies saw their share price fall by 72% on average between the date of their first transaction and December 31, 2021.

The Autorité des Marchés Financiers is alerting issuers and investors for the third time to the risks associated with equity lines of financing.

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The stock market watchdog has noted in recent years an upsurge in reports and complaints from individuals (more than 250 in 2021, an increase of 232% compared to 2020 and already more than 200 in 2022) having lost a significant part of their investment in listed companies using this type of extremely dilutive financing for the shareholder.

They can either take the form of a capital increase program by exercising options (PACEO) or an issue of bonds convertible into shares with share subscription warrants (OCABSA). The list of common devices does not stop there, far from it, since companies can also use an ORNANE (bond redeemable in cash and in new and existing shares), a BSAR (redeemable share subscription warrant) and many other sophisticated schemes for so many barbaric acronyms.

Financing for companies that no longer have access to credit

Recourse to this financing is most often due to listed companies which no longer have access to credit, in any form whatsoever, due to their deteriorated financial situation or their insufficient prospects.

For each company belonging to a sample of 69 companies, the AMF analyzed various stock market indicators, including the change in stock price between the first dilutive financing transaction identified and December 31, 2021.

Of the 69 companies that have used this type of financing, 57 companies, ie 83% of the sample, have seen their share price fall, with an average decline of 72%. The share price of 20 of them, or 29% of the sample, lost more than 90%. Only 12 companies, or 17% of the sample, have seen their share price appreciate. In value terms, 32 companies in the sample listed on December 31, 2021 at a level below 1 euro (i.e. 46% of the sample). The price of 26 of them fell below 1 euro after the implementation of the first dilutive financing (without the date being specified).

The study also shows that the companies whose share price fell the most carried out more transactions on average and used a larger number of different financial instruments compared to companies whose share price fell. the most advanced. In addition, the issuers whose share price has fallen the most have increased their capital transactions, such as reverse stock splits and nominal value reductions.

The AMF invites savers to be extremely vigilant

In view of the findings of this study, it reiterates its warnings to the attention of the various market players and individual investors. It invites issuers and their corporate officers to be “particularly vigilant before resorting to this type of financing and draws their attention to the responsibility incumbent on them in the choice and implementation of these instruments”.

The AMF reminds issuers, “that the characteristics of this financing and the associated risks, in particular the potentially highly dilutive nature, must be clearly set out in their financial communication and give a balanced presentation of their operational and financial situation”.

The stock market watchdog also warns savers of the specific risks associated with investments in companies using this type of financing and in particular the particularly high risk of loss of the capital invested.

The AMF invites both individual savers and all other investors to be “particularly vigilant before making the decision to invest in the securities of listed companies which carry out successive dilutive financing operations”.