Shares of 360 Finance (NASDAQ: QFIN) fell 26.9% in June, according to data from S&P Global Market Intelligence, after the China-based consumer finance platform announced a dilutive follow-on stock offering.
To be sure, shares plunged more than 20% on June 24 alone, the first trading day after 360 Finance proposed to offer 7.5 million new American depositary shares (ADSs) -- with each ADS representing two class A ordinary shares -- including just 375,000 ADSs offered by the company itself (to be used for "general corporate purposes") and 7.125 million ADSs from certain selling shareholders. The offering's underwriters also had the option to purchase up to 1.125 million additional ADSs, including 56,250 from the company and 1,068,750 from the selling shareholders.
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The market was already skittish from the initial announcement, particularly as its saw those selling shareholders dumping their holdings. But those concerns were only amplified a few days later when 360 Finance not only announced it would price the offering at $10 per share -- a hefty discount from the nearly $14 per share it commanded a week earlier -- but also increased the size of the offering to 9.609 million ADSs, all of which were to be sold by "several selling shareholders" with no shares offered by the company. Also, 360 Finance increased the option for its underwriters to purchase as many as 1,441,220 additional ADSs, again all from those selling shareholders.
With 360 Finance stock trading well below its December 2018 IPO price of $16.50 per share at the time of the proposed offering -- and far below its post-IPO highs above $24 per share in April -- it was hard to blame the market for bidding the stock down in response last month. So for now, until the company proves those selling shareholders were wrong for parting ways with the stock, I'm content watching 360 Finance's story unfold from the sidelines.
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