L1 capital was always on board. Have a look at Annual Report 2019 (pg. 6 and pg. 46), ASX Announcement (21/08/19) "Top 20, dist schedule, and other confirmations" as well as other ASX announcements.
L1 Capital gave money to CGB in the form of Convertible Notes. This isn't so much of an "investment in shares" like you and I invest in ordinary shares, but more representative of a debt loan which has the option to be converted to shares at the conversion date. This means when the conversion date comes around, L1 capital can choose to have the "loan" paid back with interest, or convert to shares which they can sell on market at a potential profit. Its a win-win situation for them and almost impossible to lose out.
So let us take a look at this most recent "institutional investment" by L1 Capital. L1 capital received 2.6M convertible notes and gave CGB $2.22M cash (after costs - I assume and estimate this was more likely $2.6M before costs). This is all based on conversion in 120 days (keep in mind this means CGB hope shareholders will approve to issue longer-term convertible notes so the company does not have to repay the loan in 120 days - this is a risk in itself).
Assuming longer-term notes aren't issued to replace these ones, in 120 days either 1 of 3 things will happen:
- Option 1 - L1 capital opt to have the loan repaid in cash - meaning they will make 5% return on their investment in 120 days (15% annualised return which is amazing); OR
- Option 2 - L1 capital can convert the notes to shares at a fixed price of 4c, therefore if CGB is trading at a premium to the 4c in 4 months time, they can make an even bigger return; OR
- Option 3 - CGB have the right to select to repay the loan in shares at a 10% discount to the 5-day VWAP - meaning if CGB want, they can repay the loan with shares but L1 capital can sell these on market straight away at a guaranteed 10% 120 day return (30% annualised return).
So essentially, L1 capital have given CGB a "loan" in return for either 15% annualised return (option 1), 30% annualised return (option 3) or a potentially greater return (option 2). It is a win-win, almost impossible to lose money style of investment with very good rates of return!
I don't know about you, but with guaranteed returns like that, who wouldn't invest if given the opportunity & also puts the investment in the correct light (i.e. it doesn't necessarily show that L1 capital have some amazing faith in the companies future).
I would almost be willing to be money on the fact that if these short-term 120 day convertible notes ARE replaced by longer-term notes, the conditions (returns) associated with these will make it even more attractive for L1 capital, given their money will be tied up for longer and be exposed to greater risk.
P
