The corporate regulator ASIC is taking a closer look at the IPO of music streaming startup Guvera amid questions about how a loss-making business can have a $1.3 billion valuation for its float.
ASIC today confirmed it had extended the exposure period of Guvera’s IPO, but would not comment further. This effectively prevents investors from seeking shares for at least another week.
Guvera is seeking $80 million, and as much as $100 million if oversubscribed, from the IPO which is currently listed for July 8.
But more questions are being asked about the viability of the company’s business model, its track record and where funds from the IPO will end up.
Funds from the float are critical to the company’s survival.
The prospectus notes:
“Should Guvera be unable to raise sufficient capital under the prospectus, there is a significant uncertainty whether Guvera will be able to continue as a going concern and therefore, whether it will be able to pay its debts as and when they fall due.”
The Australian Shareholders’ Association says the majority of funds proposed to be raised by Guvera will be applied to repaying debt, with limited amounts being used for business expansion.
“It is really concerning that a loss making company which expects operating losses and negative operating cash flow to continue into the future may list on the ASX, particularly where its ongoing viability is dependent on the proceeds from the IPO,” says shareholders’ association director Geoffrey Bowd.
“This is a good example of how important it is for shareholders to read offer documents carefully, including the business risks and financial information, so that they can fully understand the risks associated with the business they are investing in.”
The association, a lobby for the interests of shareholders, says it will be be interested to see if Guvera will be able to satisfy the ASX’s admission requirements, given its history of operating losses.
Last year Guvera turned over $1.2 million and lost $81 million, having bought UK streaming service Blinkbox for $650,000, only to see it fail, costing $2.3 million in losses.
According to the prospectus, a loss of $55.7 million was posted for the first half of 2016. And the losses for the first nine months of the year are now at $80 million.
Industry players are questioning the quality of some of the local tech IPOs.
Mike Cannon-Brookes, the co-founder of Atlassian and a billionaire after floating his business on the US stock market, says he’s terrified at the Guvera prospectus.
“ASX shouldn’t allow this stuff,” he tweeted.
Paul Bassat, the Seek co-founder who last year launched the $200 million VC fund Square Peg Capital, said: “The quality, readiness and valuation of some of the tech companies coming to market is an absolute disgrace.”