Shares of QT Vascular rebounded from an all-time low yesterday after the medical technology firm said it had signed a deal with Gem Global Yield Fund to provide it with up to $10 million over the next 2½ years in exchange for shares.
QT Vascular also has six months to decide if it wants to borrow an additional $10 million from Gem under the same terms. The counter surged 0.3 cent or 6.52 per cent to close at 4.9 cents, as many saw Gem's commitment as a lifeline for the loss-making firm, which has been relying on convertible bonds to fund growth and issuing shares to repay loans.
QT Vascular, which manufactures devices to treat vascular diseases, had been sold down after it said last week that it would repay US$2.3 million (S$3.2 million) of convertible bonds due this month by issuing 78 million shares at a discounted price of 4.608 cents.
In a statement to the Singapore Exchange yesterday, QT Vascular said it would use the $9.725 million net proceeds from Gem to repay borrowings and for general working capital.
The company reported negative working capital of US$23.7 million at the end of last year.
But Gem's money comes with some caveats. QT Vascular has simultaneously entered into a share lending agreement with Gem, requiring it to deliver shares to Gem prior to requesting any drawdowns on the $10 million.
Each time, Gem will return the borrowed shares to QT Vascular after the new shares are issued.
The deal structure would be familiar to investors recalling a similar deal Gem made with another listed firm, YuuZoo Corp, back in 2015.
In the YuuZoo deal, Gem was issued shares priced at a 10 per cent discount, which made it easy for Gem to short YuuZoo stock without being caught naked. YuuZoo's share price has fallen since then.
In QT Vascular's case, the agreement with Gem does not stipulate a specific issue price.
Catalist rules require only that shares cannot be issued at a more than 10 per cent discount to the volume-weighted average price for the full market day on which the request to draw capital was made.
Gem could have its own reasons to require share lending - to protect itself from price movements in the period between when the drawdown is requested and the shares are issued - but the YuuZoo experience has made some investors skittish that the trader could introduce more volatility to the counter.
QT Vascular has also agreed to issue 35 million warrants to Gem, each carrying the right to subscribe to one new company share exercisable for five years from the issue date, at a fixed 10 cent price.