As you probably know, NBT Equities Research LLC is under a very tight non-disclosure agreement with VelaTel (VELA) concerning elements of a recently held major shareholder meeting. As of January 2012 we also ended our issuer-sponsored equities research coverage of VELA but are continuing to cover for our members.
Most of what was discussed at the meeting has subsequently been released via 8k notices and within the Shareholder Letter from early March.
VelaTel committed to a very aggressive deployment schedule for its 7 operated carriers/networks and, with the equity financing they secured in March, they are 100% full steam ahead in deployment with over 220 employees/contractors in China, Peru and East Europe.
Because of this very tight NDA and our need to clear EVERYTHING with VELA counsel and our own, we have NOT been able to produce a response report since our last update in early February.
Most obviously, the shares have collapsed with panic selling over after the 8k announcements of the authorization of an additional one billion shares of common stock.
This authorization was necessary to close the $8 million convertible financing transaction—they had to allocate enough shares for the convertible note holders to convert using as low as a 5 cent conversion price.
But this authorization in NO WAY means VELA will be issuing an additional billion shares—it's only a formality required to close on the very necessary equity financing they needed to execute their multi-national 4G-LTE networks in China/Peru/Eastern Europe. The $8 million in cash and $4 million in compensation forbearance provides the equity capital for the down payments necessary to finance the deployment and equipment (along with 85% equipment vendor financing from telecommunication giant ZTE) to get VELA to positive cash flow in early 2013 AND be in a position to sell minority interests in their 4G-LTE networks to 4G wireless telecom investors for expansion capital required to complete their network build-outs (again with 85% equipment financing from their partner ZTE).
We are in the process of a complete review of the private market value of VELA's operating subsidiaries…and as SOON as we can release this update, we will.
What I CAN say is that taking the 2.5-3.5Ghz spectrum assets of VelaTel ALONE, and accounting for their various share of ownership, the spectrum assets FAR exceed 20 cents a share. Even with one billion shares outstanding (currently they have 723 million by our last count).
CLEARLY this panic selling fed on itself and rumors of bankruptcy swirled. Why else would the shares collapse? In fact, selling by the sub-contractors from their Chinese deployment partner Join Max was clearly where the selling pressure came from in late February, and then the panic selling fed on itself. Join Max paid its subcontractors for VELA work in 29 cities in China with shares VELA paid them in many cases…and they of course have NO control over those sub-contractors selling at any price. It's unfortunate, but understandable that the sub-contractors placed their shares with brokerage houses that sold the shares "cashier style"—i.e. dumped them without regard for market impact.
Based on the VERY lowball VELA pro-formas we continue to use $75 million in net revenue 2015 as our base case scenario…and at one billion shares outstanding the private market value of the subsidiaries minus minority interests divided by one billion shares gets to .25-.30 a share valuations on just the existing businesses. Again, just off their published worst case scenario pro-formas.
My best advice here is NOT to panic, instead sell a few hundred Apple shares and take advantage of the panic selling and ridiculous valuation here.
Full report out just as soon as we can get all legal counsel to clear our report. We continue to hold NBT positions and plan to take advantage of this panic selling.
Disclosure: NBT officers and affiliates own/control @10 million shares of VELA
About the Author
Founder and Editor-in-Chief NBTEquitiesResearch.com. Contributor and Anchor Fox News Channel and Fox Business Network. Chairman & CEO NBT Group,Inc., a boutique private capital investment bank and investor relations organization.
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