The Founder of Milost Global Mandla J. Gawdiso unpacked MESA an instrument which it wants to deploy to investing in Nigeria. MESA which is an acronym for Milost Equity Subscription Agreement is a creation of Gawdiso and is a hybrid of debt and equity.
According to the press release seen by Nairametrics (see below), the instrument is aimed at funding “undervalued publicly quoted companies all around the world.” Here is a summary of what MESA is about;
It’s a hybrid of debt and equity
Milost gives a company cash in exchange for equity at a 50% premium to the market price of the stock.
For example, if Japaul is trading at N1, Miost will buy it for N1.50
If the share price drops below N1.50, the company, Japaul, for example, will pay Milost the difference between the N1 and the N1.50 in more equity such that Milost value will rise back to N1.50. Japula does not need to pay cash, just issue more equity.
The company will also pay Milost 10% – 20% discount to the 5 days Volume Weighted Average Price (VWAP) as a penalty
According to Milost the cash given to the company as equity can only be used as working capital while debt can only be used to acquire cash-generating assets.
Milost called MESA “the Messiah of growth and the impartial arbiter of stock and value disparities.”
According to Gawdiso, the idea behind MESA is that they help a company cash in on its intrinsic value rather than its market value, assuming that the former is higher than the latter. For example, a stock of Company A can be trading at N5 per share even though the company may believe it is actually worth N7. They will then issue equity at the price of the N7 instead of N5, hoping that this will eventually get the market to price it at its intrinsic value.
We do not know for sure how this instrument will work in Nigeria especially for companies with significant minority shareholdings. Does this law also allow for an equity holder of a quoted company get compensation for loss of value of the stock at the expense of other shareholders? Also, will the shares issued to Milost come from the unauthorized share capital or will it be from existing shares?
Milost Global has taken the investing community off guard with its announcement that it intends to invest billions of naira in companies that had been either left for dead or close to being dead. Critics have questioned their investment capabilities and wondered if indeed they can stump up the billions of dollars in investments being brandished.
This press release appears to be a response to some of these criticisms.
Interesting to note that Gawdiso is actually quite active on Twitter. See his handle below;
Find below, the full copy of the press release;
NB: The press release had some dodgy grammar not typically associated with such releases.
NEW YORK, March 20, 2018 (GLOBE NEWSWIRE) — Milost Global, Inc. (“Milost”) a New York based private equity firm in partnership with Japaul Oil & Maritime Services PLC, Resort Savings and Loans Plc, Femab Properties Ltd, Primewaterview Holdings Ltd is pleased to present the Milost Equity Subscription Agreement (“MESA”) to the Nigerian market. The global public markets are crowded by toxic investment instruments that have and continue to impede growth for public companies. This has led to excessive bleeding for shareholders as these companies’ market valuations continue to be depressed and thereby very inconsistent with their intrinsic valuations. This led to the design and creation of the MESA.
The MESA is a global investment instrument that was designed by Mandla J. Gwadiso from 2009 until 2014. It is a combo of debt and equity facility that is aimed at funding undervalued publicly quoted companies all around the world. The instrument strategically targets companies that trade at a minimum of 50% discount to their intrinsic value. The instrument invests at a premium of 50% to market and pegs the performance of the stock over a period of 90 business days. If the stock doesn’t hit the high agreed at the set time frame, the difference is defrayed in extra stock. Take for instance, if the stock is trading at $1 per share in a 5 VWAP, the MESA would buy the stock at $1.50 per share and peg the performance thereof over 90 days. In 90 days, the MESA would look at the performance thereof over such period, if the stock trades at or above the $1.50 premium price at which the investor had purchased the stock, there would be no extra shares issued to the investor and if the stock price performed poorly and had not reached the purchase price then the difference between the 5 day VWAP of $1 and the premium purchase price of $1.50 would be paid by the Company to the investor in extra stock.
If the stock failed to reach the premium purchase price, the Company would also pay a penalty of 10 to 20% discount to the 5 day VWAP for failing to reach the high agreed price at which the investor had purchased the stock. The MESA is a growth instrument that creates and builds confidence in the stock of the companies in which it invests, as it invests at 50% premium to the market. Since the MESA is a funding facility, the companies can’t draw down the entire committed capital in one tranche. The MESA is a 3 to 5-year facility that a Company can draw down against from time to time over such period. The Company decides how much and when to draw down, thereby allowing the company the flexibility to draw down equity when the stock price is favourable to the Company so as to ensure a well-managed structure of dilution of current shareholders for each equity draw down. Equity draw down proceeds are used strictly for working capital, whereas note draw down proceeds are strictly used to fund growth through acquisitions of cash-flow positive assets or organic growth. At no time during the term of the MESA can a Company draw down more than 51% of its market capitalization and the draw downs are not tied to stock liquidity as Milost is a growth investor that only exits after 7 to 9 years after the time of investment.
The MESA is one of the most effective investment instruments because it causes the market to correct the valuation of the stock in sync with the Company’s intrinsic value. Unlike other instruments that are mostly used by hedge funds, the MESA is value instrument that is designed to only exit investments after 7 to 9 years from the time of investment. In a nutshell, the MESA never trades its equity positions in the market.
“The MESA is the Messiah of growth and the impartial arbiter of stock and value disparities.”
By Mandla J. Gawdiso.