IP E-Game Ventures clarifies REIT plan (sort of)

IP E-Game Ventures [EG suspended] said a couple of days ago that it would create a new REIT subsidiary, and the PSE asked for EG to clarify the rationale for the move, the timeline for the plan, and other details to help investors learn more about the company’s initial vague announcement. According to EG’s clarification [link], it’s looking to get into the REIT game to “provide the Company with recurring revenues and profits... [that] will translate to an improved financial performance for the Company and aims to improve shareholder value.” The creation of the REIT will “expand the Company’s activities into real estate related investments”, and EG plans to fund this expansion of activity “through a combination of equity and convertible debt and other instruments”. EG said that it plans to invest at least P300 million into this REIT company, and that it expects the incorporation of the REIT company to be completed “around the end of the 3rd quarter of the current year.” 

MB bottom-line: It looks like the board was sitting around one day and was like, “What do we have a lot of that we could monetize here, fellas?” And one guy looked at EG’s stock data page and was like, “Well, we don’t have money, or assets, or anything else like that, but our free float is absolutely massive... maybe we can use that?” EG’s public float is 91%, and based on the last trades in 2017 before it was suspended, it has a market capitalization of P282 million and 30 billion in outstanding shares. Seems like the plan here is to borrow money to buy some real estate for the REIT, then sell at least 33.3% of the REIT in an IPO  with proceeds going back to EG, with the promise of converting that original debt that it used to buy the real estate into equity for those lenders at some future date. While it’s possible that EG could enter into debt arrangements with people who are unrelated third parties, the feeling that I get here is that EG plans to “borrow” from its ownership group and issue non-public shares to those lenders in exchange for the money. In theory, EG could issue up to 105 billion “new” non-public shares without pushing its public float below the minimum 20% threshold. What properties will they buy with the money? It’s not clear. Is this what EG is planning to do? Who knows! If it is, is it a good plan? I have no idea. It’s definitely creative and unusual. I’m morbidly curious to watch this play out.

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