Non-banking credit company Shoham Business (TASE: SHOM), controlled by Eli Nidam, is planning to expand its activity by raising NIS 50 million in debt through the Fundit crowdfunding website. Poalim IBI Underwriting and Investments (TASE: PIU) and Moonbuzz Capital, controlled by Yossi Arad, former right hand of Ilan Ben Dov and former CEO of Tao Tsuot, which went bankrupt), are organizing the funding drive.
If the campaign is successful, it will be the first case of debt being raised by a public company on a crowdfunding website. Poalim IBI invested NIS 4 million early this year in the Fundit website, founded by Israeli crowdfunding venture Headstart, and received 14% of Headstart's shares.
Shoham Business began operating last June as a check discounting company, after Nidam acquired the activity of stock exchange shell Kela Investment Fund earlier in the year. The company had only NIS 730,000 in cash at the end of the second quarter, and its equity was NIS 4 million, which does not allow it to raise money through an ordinary bond issue (the Tel Aviv Stock Exchange (TASE) requires a minimum equity of NIS 24 million).
Nidam is therefore seeking to expand the company's check discounting business through crowdfunding, with the Fundit website being the platform for a financing round of up to NIS 50 million. The debt will be raised from time to time at Shoham's request, NIS 5 million at a time, with the highest annual interest rate in the agreement being 5.9%, plus the Bank of Israel interest rate (as of now, 0.1%). The Fundit website charges 2-7% commission, depending on the character of the debt raising, use of the credit, instructions to the trustee, and other variables pertaining to the deal.
The organizers will receive options each time debt is raised
Shoham notes that the company plans to clear the debut and interest rate operations through the TASE system for unlisted securities. In order to secure the debt, Shoham plans to deposit its checks for discounting with a trustee, and Nidam also intends to attach his shares in the company (he holds a 57.8% stake in Shoham, with a NIS 25 million value), in addition to a personal guarantee.
As part of the agreement, Shoham undertook that for every NIS 5 million raised, Poalim IBI and Moonbuzz will be entitled to an allocation of options for 0.75% of Shoham's shares. In the event that less than NIS 5 million is raised, the options will be granted proportionately to the amount raised. The exercise price for the options will reflect the company's average share price during the 30 days following the date on which the company obtained the debt, plus 50% of the share price. The options will be valid for four years after they are allocated. In addition, Poalim IBI, Moonbuzz, and Fundit are entitled to additional commissions if the debt raising operations are successful.
One financing round by Fundit to date
Fundit was founded following the Israel Securities Authority reform, which allowed financing rounds through crowdfunding, and which was approved by the Knesset in 2015. Fundit allows qualifying investors (those with liquid assets amounting to at least NIS 8 million, or a private individual whose personal income was at least NIS 1.2 million in each of the past two years, or a combination of them) or institutions to finance public companies seeking to raise capital through an offering of shares or bonds.
Fundit has carried out one financing round to date for Zucaa, a company that supplies raw materials to the food industry. Another financing round for a company developing hydraulic bicycles without a chain is currently in the midst of the process.
The non-banking credit sector has flourishing in recent years, and the majority of listed companies operating in this sector reported strong results for the second quarter (other than SR Accord, controlled by Adi Zim, the business of which was affected following Zim's arrest and the investigation against him). Nawi Brothers, the largest public company in the sector, finished the second quarter with a 16% rise in profit to NIS 16 million. Opal Balance increased its profit by 60% to NIS 4 million, and Peninsula Group's profit shot up 140% to NIS 4 million.
Published by Globes [online], Israel business news - www.globes-online.com - on September 8, 2016
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