on Monday announced it intends to raise an extra $1.25 billion by selling so-called convertible notes, a type of bond that lets the purchaser earn interest or else convert the holdings into stock.
The move comes as something of a surprise given that the company is cash flow positive, and went public by means of a direct listing just over a month ago. That listing, however, did not involve the sale of new shares so the bond announcement appears to be a strategic decision to raise extra capital at a time when interest rates remain at historic lows.
“This capital raise represents an opportunity to bolster Coinbase’s already strong balance sheet with low cost capital that maintains operating freedom and minimizes dilution for Coinbase’s stockholders,” said the company in a press release announcing the decision.
One analyst suggested Coinbase’s decision was a shrewd way to ensure it has a healthy balance of cash on hand in the event markets shoot up or down.
just went public… using the debt markets already… probably smart to take cash if markets/revenues are expected to decline significantly… or go through another hypergrowth cycle.
— Gabor Gurbacs (@gaborgurbacs) May 17, 2021
It’s unclear for now if Coinbase intends to use any of the money it raises to add crypto to its balance sheet. The release stated the company would use the proceeds for “general corporate purposes, which may include working capital and capital expenditures” but did not provide more specifics. Coinbase did not immediately reply to a request for comment.
It’s relatively rare for public companies to issue convertibles notes of this nature, but not unprecedented. Telsa, for instance, has repeatedly turned to such notes to raise money, including in 2014 to finance its battery factory, and in 2019 for general purposes.
Meanwhile, MicroStrategy—another public company that has loaded up on Bitcoin—used convertible notes to finance recent crypto purchases. And on Monday, Square (also a big holder) announced plans to issue bonds, though the company did not specify if the proceeds would be used to buy Bitcoin.
Coinbase’s plan to issue the bonds is still provisional but, if the company goes ahead, they will be sold in private transactions to institutional investors—all of whom will be able to convert them to Class A stock if they wish to do so.
The Coinbase announcement also comes as the company’s shares have hit an all-time low following a spate of bearish news for crypto over the weekend, including rumors that Tesla may dump its Bitcoin holdings. On Monday, Coinbase stock was trading at $248 at market close—down nearly 45% from the $429 high it hit shortly after shares first started trading.
News Source from Decrypt.co