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Hi Weathergeek,

£ 1 to charity seems a bit curmudgeonly ;-> !

When you write ..."SYME has been generating working capital throughout June July and Aug and will continue to do so....", this is all well and good, (and it will be interesting to learn the actual numbers) , but of course none of SYME's cashflow is available to support the structured funding models that now (per AZ Proactive interview) require an (indirect) 'first loss' cash contribution and made necessary the 1AF2 deal

I earlier wrote that , at the time of pledged shares deal, I calculate that 5.9 billion shares @ 0.075p ie face £ 4.5million @ UPC's typical 45-65% LTV would generate net funds available for security of £ 2-3 million. At a 10% security margin (to be meaningful), that would support £ 20-30 million in funding.
Even if the lenders lend against current 0.75 p (ie face £ 45 million, net £ 20-30 million), that theoretically supports £ 200-300million in funding.

An impressive sum, but insignificant in the context of the billions of prospective business in the pipeline. The pledged shares deal helps prime the pump, but I'm not sure how much water will actually flow....and how much/for how long a cash contribution will have to be found.

Maybe later investors will be more comfortable with an up-and-running model and waive / reduce the security requirement ?

Guess we'll find out in due course.

BTW, let me know if you think any of the assumptions in my calculations are wrong

ATB

Hi jimbob1983,

You wrote :
..."The shares were collateralized, the funds paid to 1AF2, who will in turn inject those funds into SYME (in one way or another)...

No. SYME itself can't be involved in any financing, that would cause it to lose its coveted 'fintech' cachet.

See pp 38 and 39 of the Prospectus, which describes the 'business service overview' and 'service model system map' for its arm's length involvement.

ATB

PS As to the comments re Quindell et al , rather than look at the specifics of that case, have a gander at how Stock Loan Solutions and Union Pacific Capital promote their services generally.

Hi Weathergeek,

I apologise for calling you a politician - it was a poor attempt at levity, but on reflection, that is going a bit far !

If you look at the Inquiring thread it was started by someone (not me, you've lost your wager, so feel free to send a donation to LOROS Hospice) asking who the 3 x lenders were, mentioned in the RNS. THAT was what got me going and the conv then drifted into 1AF2, what its shares were worth, what the lenders might be able to do with them, why AZ wanted the indirect loan etc.

In the Prospectus, the Consideration Shares were 'bigged up' as being the IP, which was ascribed a generous valuation.

In the 30th June RNS, the BoD appear to have decided to play down this 'value' and instead placed emphasis on another intangible : the 'value' inherent in the pipeline of prospective business, as you yourself did in your reply to me.

The proof of the pudding will be in the eating :
- for IP 'worth' £ 225 million, SYME still seems to be in the developmental phase, sorting out 'teething problems' , like discovering that potential funders want a 'first loss' security margin. You'd expect this sort of 'nuts and bolts' issue to have been identified in the 2 x pilot studies...or at least aired in the 'fintech' community as an issue.
- as regards the 'value' of a pipeline of prospective business, I'm not clear how much they'll be able to execute if they stick to the development/implementation timetable of the platform, funded from £ 1.0 m of the net £ 1.4m Placement Proceeds, which has some features scheduled for introduction in mid-to-late 2021.

Whichever basis of presentation the BoD/you choose, there's a lot of 'hope value' built in. Put another way, 'more sizzle than sausage'.

I think SYME is a very interesting little company, with a great concept that IF it works will be a very interesting BIG company.

Enjoy the weekend !
ATB

Hi jimbob 1983,

Thanks for engaging/informing and I look forward to the outcome.

At the risk of starting another hare, when you write .."My question now is whether the approximate loan received in consideration for the shares matches the value of the shares purchased by AZ recently.."

Which shares do you mean ?

It would be odd for AZ to use borrowed funds to buy shares in SYME when the 29/7 RNS said that 1AF2 intended (if allowed) to use the same funds to participate in one or other of the structured fundings (where AZ said there'd been a requirement to cover 'first loss'' risk).

Have a good weekend !
ATB

Hi Weathergeek,

It's a politician's reply to answer my comment on the Prospectus by reference to a different document...and then really typical of a politician ;-> to get the reference wrong : the RNS you're quoting is 30th JUNE 2020.

This would be the RNS where :
- the new Board decided that the structure of the RTO was wrong (Prior to the completion of the reverse acquisition, the current directors considered Supply@Me Capital plc did not meet the definition of a business in accordance with IFRS 3. Consequently, the reverse acquisition has not been accounted for as a business combination, but as a share based payment.) ;
- "The transaction was effected by way of the issue of consideration shares. Due to Supply@Me Capital plc effectively having no substance, and that Supply@Me S.r.l. was acting as the parent company, the consolidated Group is accounted for as a capital reorganisation rather than a business combination;
- the accounting reference date was extended to cover 18 months to Sept 2020, with first audited accounts therefore post-poned to Jan 2021;
- historic financial info has been recast to reflect the new accounting treatment, but " in accordance with the FCA's Disclosure and Transparency Rule 4.2.9(2), the Directors confirm that these interim condensed consolidated financial statements have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information."

'Prospective business ' is well and good , but only fractionally ahead of 'addressable market' (which goes back to dotcom boom days, at least), I don't think any auditor - for instance - would ascribe much value to that.

Speaking of ascribing value, this started IIRC with a comment about Consideration Shares. Let's go back to the Prospectus that I suggested you look at :
- p8 Note 3 Intangible Fixed Assets
- p9 Note 3 Goodwill arising on consideration effectively paid
- p 12 ' no proceeds from acquisition as no Consideration Shares issued for cash;
-p14 Consideration Shares ascribed an estimated NAV of 0.69p, issued at 0.006756p (notional), the 99% premium to NAV being based on the " assessed value of SYME's / the Board's fintech strategy and human capital".

The only 'hard' number I've seen is that SYME Italy invested Euro 1.5 m over 4 years for the intellectual property it's contributed.

I respect people..... 'of all faiths and none'.

Have a good weekend !

Hi Gotham,

I've given my understanding of what the RNS's say. Others (likely better informed than me) have queried whether pledged shares can be sold or only traded.
What is clear to me is that they can potentially be 'used' in various ways over the next 2 years, without SYME shareholders or the market being informed . 5.9 billion shares is 18% of the Company.
If you don't know whether, how or for what purpose they MIGHT be used , I'd say that's a new uncertainty, wouldn't you ?

And I've separately said that - on the face of it, looking at the funds generated - it's an awful lot of work for very little (apparent) return.

Have a good weekend !

Hi apunter2,

(a) which bit in particular, I've lost track of how many firefights I'm in .. (here and elsewhere) .;->

(b) As I've already mentioned , I'm neither a shareholder nor short, so have no 'confirmation bias ' either way...and don't feel it would be right to take up AZ's time just to satisfy my intellectual curiosity.

I'm trying to get my head around 'momentum investing' and SYME seems as good a place as any to learn (from the BB's) ...and it's in an area (trade finance) that I spent some time in - long ago and far away.

So DYOR ! and have a great weekend !
ATB

Me again,

If the prices I've quoted are accurate, the value of the Pledged shares at the time would have been about £ 4.5 million.

One of the 3 x lenders says on its website that it typically gives loan to value of 45-65%, so if this was representative, the funds raised by 1AF2 would be somewhere between £2 and £3 million.

"You do the math" as they say over the pond.
ATB

Hi Weathergeek,

The 29/7 RNS mentions 3 x prices (0.07617p, 0.075p and 0.09p) ,for the pledged shares , so I assume realtime on the dealing days (24th and 27th, from memory).

AFAIAA, AZ didn't buy any shares at the Placing Price” £0.006756 per Placing Share.

He holds Consideration Shares (for which no cash was paid) which were given an "ascribed " value of £ 225m approx, based on SYME's fintech-related "intellectual and human capital", for which SYME had spent 4 years and Euro 1.5 million developing.

99% of the value of SYME is 'intangible fixed assets', including approx £ 220 m in goodwill.

Have a look at the Prospectus and let me know if you disagree.

ATB

Me again,

Now , if the 3 x lenders see a first deal facilitated and how this affects the share price; look at the current security value (approx 10 x) and decide to lend more, then mutatis mutandis, that would support more business.

And as the share price goes up, yet more.

A bit risky for the lenders, if the s/p having gone up, were then to fall, unless they'd hedged their position.

Another area where I'm lacking in expertise, so happy to be corrected.

ATB

Hi jimbob 1983,

I don't know enough about the securities industry to address your point, which may be valid.

If you look at the numbers, your comment "they don't carry the same value or LTV " makes the situation even more confusing :
- we're talking about business/funding in the billions;
- per the Proactive interview , this structure was needed to give SYME the ability to provide indirect security in a way that didn't imperil its 'fintech' rating/status;
- the face amount of the shares pledged during the drawdown period can't have been more than abt £ 4.5 million;
-one of the funders quotes 45-65% LTV ; if this is typical, 3 x lenders will collectively be providing £ 2-3 million.

I don't know what 'first loss' margin the Structured or Open Funding investors are seeking (I would ballpark 10% as meaningful) ie supports funding of £ 20-30 million; even a 'token' 1% would only support funding of £ 200-300 million.

How do we get from there to the pipeline in the £££ billions ?

Beats me.

ATB

Hi Weathergeek,

Thanks for posting the Proactive interview.

AZ quite correctly clarified that 'he would never sell his shares' . However, the RNS seems to make clear that the Lenders CAN, for reasons of their own. These are not mutually exclusive positions.
If AZ WERE to sell his shares, we would know. Under this structure, we won't.

Capisce ?
ATB

Hi Zitswd25,

Someone will be happy to correct me if I'm wrong, but I think the situation is a variant on 'musical chairs' : so long as your nearest a chair/have the shares when the music stops/the loan is repaid, everything's hunky-dory.

What you do with the shares whilst the music is playing (the loan term is MINIMUM 2 years) is to some extent up to you, I guess...How would anyone know ? Who would check ?

This is one of the (hypothetical !) negative scenarios that I mentioned.

ATB

Hi jimbob1983,

AZ describes the nature of the problem affecting SYME; why it couldn't solve it directly; and how use of 1AF2 indirectly got around the problem in his Proactive interview of 30 July.
As this was the day after the 2 x RNS's on the deal, I think he felt/was told that some additional explanation was needed.

Listen to it and let me know what you think.
ATB

Hi apunter2,

Go for it !

Here you go : https://www.supplymecapital.com/wp-content/uploads/2020/03/Project-TAG-Whitewash-circular-FINAL-for-posting-and-display.pdf

ATB

HiIraMil7,

You ask 'why would any of these Lenders sell ?'

The RNS says 'Lenders may trade pledged shares to diversify their portfolio concentration risks.'

This seems poorly worded and/or doesn't make sense : if the loan was static (ie based on original security value approx £4.5m, it would be LATER business that might lead to unacceptable portfolio concentration - so they wouldn't write it). This only makes sense if the 3 lenders lend more to 1AF2 on the basis of higher value security - now around £ 45 million.

The important thing is, it's basically a 'business decision', which could cover a range of reasons.
All IMO
ATB

Hi apunter2,

I think on this occasion you've got the wrong end of a number of sticks :

AIUI , AZ has a direct holding in SYME and an indirect holding via an SPC of AZ's , 1AF2.
From the RNS, 1AF2's 'rump' holding post pledge, 5.92% is held by Eurofinleading Fiduciaria
SpA
The reason of the notification is a loan security ("Pledge") agreed by 1AF2 and three Stock Lending Platforms.
Upon repayment of the secured loan, shares pledged (17,99% of SYME) will be returned to 1AF2. "

Looks to me like they've been formally transferred out. The PMDR RNS says as much...and the fact that the lending platforms can sell the shares at their discretion in the interim, for their own purposes, suggests they have physical control.
And no requirement to report to the market if they do.

Remember (AZ would say 'pay attention' ;-> ) : AZ's shares are 'Consideration Shares' which were ascribed a value of £ 225+ million as 'intellectual property and human capital', for which SYME Italy spent Euro 1.5 million over 4 years. Explicitly stated in the Prospectus ' no cash value' in the RTO. Intangible.

Is AZ looking after shareholders ? You tell me : Could SYME have done a placing ? No. Firstly, because it's a newco, has no audited accounts, no trading history and secondly , because it couldn't tell the market what it wanted the money for : the whole concept is that it's a capital-light sexy 'fintech' company (and to be rated - and regulated - accordingly), , rather than a humdrum 'financial services' company .
If you listen to the 30 July Proactive interview, AZ explains that certain prospective funders wanted SYME to post 'first loss' security. It couldn't do this itself - per the above - so it's done so indirectly, via 1AF2. Quite cute, but as I said at the outset, not without consequences : prospective investors now have a precedent to call for security/margin (which SYME will have to sort out somehow, going forward); and 18% of the Company's shares (5.9 billion) are now 'opaque' and in the hands of companies whose interests are not congruent with other shareholders.

As I said earlier , 'listen to people's intentions, but plan according to their capabilities' .

Google First Equity Holdings LLc , iGAS, Quindell for examples of what COULD theoretically go wrong in what were similar circumstances. Don't be put off if you see Winnifroth's name crop up. I was onto iGas before him, FWLIW.

Then google the three lenders. High West Capital's , in particular.

ATB
PS Why should I hate you ? You give me an opportunity/excuse to get away from the day-to-day stuff and give the old brain cells a bit of a workout ;-> !
PPS " Pay attention " : No-one's commented on the topical name of the street where SYME's Italian auditor RSM is located....Via Meravigli.
Made me laugh, anyway

PS It's worth spending a few minutes googling the 3 co's, Union Pacific Capital in particular, to get a flavour for their business model.

ATB

Continued...

Points :
- The funding model and assumptions described in the Prospectus are out of date and (however indirectly) this deal has set a precedent for future funding that seems likely to constrain the volumes of business SYME will actually be able to do in future.
At a 10% security margin - unless further leveraged some way - that would support £ 50 m of business, even if loan was increased to current market value, that would only support abt £ 500m.
- 18% of SYME is now in the hands of 3rd parties . AZ may be correct in saying that he won’t sell, but there’s nothing to stop the 3 x Lenders doing so, for their own reasons.

There's an old axiom that says ' listen to people's intentions, but plan according to their capabilities'. I can envisage several negative outcomes here.

- If they do sell at any point over the 2 years loan life , they will have a vested interest in keeping the SYME s/p down thereafter (especially if they have meanwhile lent any more against the increased security).

My view : It looks as though AZ has had to resort to some fancy ‘financial engineering’ to keep the SYME show on the road. The consequences are some -ve impact (unquantifiable) on potential business volumes and a newly introduced element of uncertainty over the share register.

ATB

Hi Zitswd25,
Here you go :
I’m trying to understand the significance of AZ’s recent pledge of 5.89 billion shares of his SYME shareholding, reported in 2 x RNS’s of 29 July.
AIUI, AZ owns 42.89% of SYME (14.05billion shares), 18.98 % directly and 23.91% indirectly, through 1AF2 s.r.l.
Per the RNS, 1AF2 .” has transferred as loan security a number of SYME shares [ Ed.: 17.99% of its 23.91%, ie 5,89 billion shares ] to three lending platforms as follows ("Lenders").
- 1,615,253,000 SYME shares transferred to High West Capital Partners LLC
- 778,571,429 SYME shares transferred to Stock Loan Solutions LLC
- 3,500,000,000 SYME shares transferred to Union Pacific Capital Ltd
The shares have been transferred to secure loans (the "Loans") to 1AF2 ("the borrower"), with a minimum two-year duration(1), after which period 1AF2 confirms that it intends to repay the loans.(2) The Loans may be drawn in a series of tranches over one month (3) and Lenders may trade pledged shares to diversify their portfolio concentration risks (4). Upon repayment, all 5,893,824,429 SYME shares will be returned to the borrower.
SYME has been further informed by 1AF2 that, subject to regulatory approvals, it will offer to invest funds from the capital raised into the Company's inventory funding process alongside institutions (in the Open-Funding and Self-Funding structures) as described in the Trading Update RNS of 27 July 2020 (5)
Mr Zamboni's 18.98% shareholding in SYME held through Orchestra Group remains unchanged.
My notes :
The shares were pledged between 24th and 27th July, when the s/p was around 0.07p, so at the time, a ‘face value’ of abt £ 4.5 million. There was a 1 month drawdown (3) , SYME’s s/p didn’t move up appreciably until later in August, now worth abt £ 45million.
If Lenders have kept to original terms, this is a nice position to be in. If they’ve lent more (on the basis of increased security) I doubt we’d be told – there’s no change to the pledge – but (4) might come into play : “Lenders may trade pledged shares to diversify their portfolio concentration risks”. The 3 Lenders are able to sell SYME shares if they wish, which could have a depressant effect on the s/p. They’re under no obligation to inform the market.
The 3 Lenders have to return the 5.9 billion shares at some point (assuming 1AF2 repays its borrowings), but not for at least 2 years.
1AF2 intends to use the funds raised (if it’s allowed to) to co-invest in SYME’s Open-Funding and Self-Funding structures.
AZ subsequently clarified in a 30 July Proactive interview that ‘he would never sell a share’ and that the loans would in fact indirectly benefit SYME. This, AIUI, was because an issue had arisen with prospective investors , who wanted to see some ‘first loss’ cover in the funding structure they were looking at.
SYME couldn’t provide this security margin itself, because that would make it a ‘financial services’ company, lower rated than ‘fintech'