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ZAKZAK: The mysterious foreign holders of Nova’s equity warrants

It looks as though in trying to scrape together cash to pay everyone and keep Nova afloat somehow, Sahashi has made deals with some shady people. ZAKZAK ran an story yesterday about the president of Roots and the equity warrants Nova issued. Here's a translation of the story.

The mysterious foreign holders of Nova’s equity warrants

The spreading unease among market players

Major English conversation school Nova is in a serious cash crunch over issuing refunds for canceled contracts. Following the issue of new equity warrants to two foreign funds, Nova will be able to obtain funding at the end of October, but the way it is doing so is causing market players to ask if this is a good thing. Today is payday for Nova’s foreign teachers and the company continues to tread a thin line.

A representative at a securities firm lamented, “Nova’s cash flow problems have finally come to a head.”

At the beginning of October, Nova announced the issue of 200 million new equity warrants to two foreign funds. The new equity warrants give the funds the right to purchase Nova shares at a certain price. If the funds exercise their rights, Nova would issue stock and use the money from the sale to operate the company.

The new warrants will be issued to the two funds on October 24 and net Nova 70 million yen.

The warrants allow stock to be purchased at 35 yen a share, and if the entire 200 million warrants are exercised, Nova would raise 6.4 billion yen minus financial fees.

However, if all of the warrants are exercised, the amount of issued shares would triple. Nova shares would be greatly diluted, and the 70% share in Nova held by Sahashi and his affiliates would plummet to 18%, effectively selling the company. This entire effort to raise money depends on the price of Nova’s shares. Under the agreement, the two funds must exercise their warrants upon Nova’s request, but if the share price drops below 35 yen at the end of the month, Nova loses its ability to demand that the warrants be exercised.

The share price is projected to be between 35-45 yen, but whether everything goes according to plan depends on some shady elements.

What is troubling are the owners of the warrants. Rich Peninsula Trading Limited and Tower Sky Profits Limited are two funds based in the tax haven of the British Virgin Islands.

Both funds have the same address and the same representative, Callumberg Limited, an unknown company, according to one securities analyst, backed by European money and possibly run by Japanese.

In 2005, the two funds undertook equity warrants from clothing retailer Ichiya, but a portion of the warrants remain unconverted leaving Ichiya to accept them at no cost. That same year, the funds were first named as investors in a private placement for precision equipment maker Union Holdings, but a “clerical error” resulted in no payment being made.

The securities analyst expressed concern noting that up to now, the name Callumberg has been associated with bankruptcies and companies delisted from the stock exchange.

With Nova strapped for cash, many market players are concerned.

Since April, the number of contract cancellations has sharply increased with the General Union, the union Nova’s teachers belong to, estimating the total amount of the refunds to be more than 10 billion yen.

This is in addition to the fact that the Japanese staff and foreign teachers have had their pay delayed resulting in the Chuo Labour Standard Inspection Office issuing four warnings of non-compliance.

Even on the critical issue of income, Nova is in a precarious situation as the six-month administrative punishment doled out by METI in June prevents Nova from signing new lesson contracts.

How long will Nova continue to tread that thin line?

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nice translation, thanks shawn.

It is a bit of a mute point with the stock price closing at 30 (down to 28 at one stage) today
Who would want to buy this junk bond

The "silent point" of the stock price is MOOT!

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