Shares in global payments platform Finablr (FIN) plunged nearly 30% on 24 January and remain under the cosh at 94p.

This is after the company announced that its majority owner and founder, UAE-based billionaire B.R. Shetty, had pledged 392.2m stocks, roughly 56% of the company’s shares, for security against borrowings raised by BRS Ventures & Holdings. The debt was used in the acquisition of a majority stake in Travelex five years ago.

Pledging shares involves transferring the right of ownership to another party as security against a loan.

In response to the share price drop Finablr said that it had sought clarifications from the investment vehicle owned by Shetty, and had been ‘reassured by the level of security represented and the talks it has had with its banking group about repayment or refinancing of the debt’.

Finablr floated on the London Stock Exchange in May 2019 and the shares have since lost nearly half their value.

TRAVELEX GOES OFFLINE

On New Year’s Eve Travelex reported that it had suffered a cyber-attack which compromised some of its online services. As a precautionary measure the firm went offline while it fixed the issue. There wasn’t a breach of customer data according to the company.

While the incident isn’t expected to have a ‘material impact’, it’s possible that business momentum has been hit by the move to manual systems.

SAME TRICK, DIFFERENT PONY

Billionaire Shetty is also founder and largest shareholder in UAE-based NMC Health (NMC) which crashed 27% on 17 December as short seller Muddy Waters accused the company of overstating its asset values and reported debt levels.

In a surprising turn of events, shortly after a strong rebuttal by management, two of NMC’s largest shareholders, Saeed Mohamed Al Qebaisi and Khalifa Butti Al Muhairi, sold a combined £430m shares in NMC in order to satisfy borrowings against the value of pledged shares.

As part of that transaction $75m of Finablr’s shares were also sold to satisfy the indebtedness, showing that pledging shares represents ‘business as normal’ at both companies.

LEVERAGE WORKS IN REVERSE TOO

The problem with using shares as collateral for a loan is that shares can be very volatile which in turn means that the pledger is constantly at risk of ‘margin calls’ to top up collateral values.

In a worst case scenario, the lending bank will take action to protect its position by selling the shares and wiping out the value of the borrower’s equity position.

‹ Previous2020-01-30Next ›