AfriTin (ATM.L) has announced it has signed an agreement to issue 2.05M GBP in 1-year notes which will be issued in tranches of 50,000 GBP and have a 10% coupon. AfriTin reserved the right to repay these notes in either cash or shares (at AfriTin’s choice), and if AfriTin chooses to repay the notes in shares, the 20 day VWAP will be used to determine the issue price of the shares.
Securing funding with a 10% coupon for a non-producing project is quite cheap but there was a kicker to the note financing: for every GBP contributed in debt, the debt providers will receive 10 warrants (20.5M warrants in total) allowing the warrant holder to acquire stock at 1.95 pence per share for a three year period. The 1.95 pence exercise price is a 30% premium to the closing price before announcing the loan agreement. Should all warrants be exercised, AfriTin will receive just under 400,000 GBP in proceeds (which could potentially help towards repaying the debt).
Raising money by issuing debt indeed doesn’t dilute the shareholders but AfriTin will have to make sure it doesn’t just kick the can down the road as the year-end financials will already show almost 4M GBP in debt from a previously closed loan facility. Raising debt is fine, but the funds will ultimately have to be repaid, so we will need to keep a close eye on AfriTin’s balance sheet.
Disclosure: The author has no position in AfriTin.