What went wrong with Quindell Equities First Holding deal RNS?

Are the Quindell EFH RNS announcements a communications disaster or a stroke of genius?

This is not the first deal EFH have been involved in with publicly listed companies. What is interesting is this is the first time the deal has been subject to in-depth scrutiny.

IQE have the same type of arrangement with EFH and the wording in the IQE RNS is very similar to the Quindell RNS.


IQE RNS wording
:

Under the terms of the facility, the lender is prohibited from short selling or voting the shares during the term of the loan. The loan facility has been arranged , and the funding provided, by Equities First Holdings, a securities based capital provider of finance for private and institutional investors. Following these purchases, the executive directors have the following interests in the equity of The company.

Quindell RNS wording;

Under the terms of the facility, the lender is contractually prohibited from short selling or voting the transferred shares during the term of the loan. The loan facility has been arranged and the funding provided by Equities First Holdings LLC, a securities-based capital provider for institutional and individual clients. Following today’s purchases of 1,575,000 Ordinary Shares, the Purchasing Directors have the following interests(1) in the equity of the Company:

What are the main differences?

The main difference is the inclusion of the words contractually prohibited from short selling in the Quindell RNS. This you would assume has been inserted for one reason only and that is to reassure the market.
This however rather than steady the market has for no rational reason created investor uncertainty.

By trying to reassure the market Quindell have raised more questions. We will only know what EFH are doing with the shares when we receive a regulatory announcement or EFH inform the market.
Another area left to interpretation is the announcement that EFH have no intention of selling the shares. This statement doesn’t reassure the market.

I do not believe EFH will sell the shares as they would be taking a huge financial risk due to the volatility of the share price. Why would they do this if making good returns with interest charges and arrangement fees?
The IQE RNS includes detail missing from the original QPP version. IQE version highlighted exactly how many shares had been transferred along with the resultant subsequent Directors position.

This has misled the market either by error or omission.

Conclusion

Quindell have either scored an own goal with a badly worded RNS or they have made a genius move that the market hasn’t yet fully understood.

I currently believe the issue is one of communication.

Interestingly the share price of IQE has risen by c40% since the EFH arrangement put in place and it took 5 days for the share price to respond positively to the announcement.

All the indicators are this is a short-term issue until the market fully understands what is happening with the deal and Directors make further share purchases.

We have had the first Director share purchase announcement today and I would expect more to follow.

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