What happened?
IREN Limited $IREN (-0,88%) has completed a massive financial restructuring ("refinancing") of around USD 3.6 billion:
- Share sale (equity): The company placed 39,699,102 new ordinary shares at 41.12 USD.
- Dilution: Based on the last approx. 283.5 million shares outstanding this corresponds to an immediate increase in the number of shares by approx. 14,0 %.
- Debt buy-back: The proceeds of approx. USD 1.632 billion will flow almost entirely into the repayment of old, more expensive debt.
- New debt (convertible bonds): New bonds were issued for USD 2.0 billion were issued, divided into two tranches (maturing in 2032 and 2033).
What are the effects of these actions?
- Interest savings: The new interest coupons are extremely low: 0,25 % (for the 2032 bond) and 1,00 % (for the 2033 bond).
- Dilution protection (capped call): IREN has USD 174.8 million (approximately 10% of the net proceeds of the bonds) to protect against dilution from the bonds.
- Scope of protection: This protection applies up to a share price of USD 82.24 - which is a 100 % premium to the current share price.
- Potential future dilution: If the bonds are later converted into shares (from approx. 51.40 USD), there would be approx. 38.9 million additional shares (up to approx. 44.7 million if the over-allotment option is exercised in full). This would correspond to a further potential dilution of approx. 12-14 % in the distant future from 2032/33.
How to assess this action?
- Strong confidence (0% discount): The new shares were issued without any discount at the market price of 41.12 USD were sold without any discount. Discounts of 5-10% are common for such capital increases; the fact that this was not necessary here is shown by the enormous demand.
- Bet on a doubling of the share price: The expensive dilution protection of up to +100 % (target price > USD 80) signals that the management believes that a doubling of the share price in the next few years is a realistic scenario.
- Long-term calm: By paying off its 2029/30 debt and replacing it with bonds by 2032/33, IREN has bought itself financial headroom for almost a decade.
Unfortunately, the share price has suffered somewhat, but new capital is essential for further expansion. The demand for AI infrastructure is far from being satisfied and $IREN (-0,88%) is in a prime position to benefit from it.🚀
