Electric vehicle start-up Fisker has announced its plan to raise $170 million in convertible notes due in 2025, which will result in a cash influx of approximately $150 million for the company. Despite initially trading lower during the premarket session, Fisker’s shares experienced a boost on Friday.
A Unique Investment Opportunity
The convertible notes are offered at a discounted rate to their face value as they do not bear any interest. The discount amounts to about 12%, making it an intriguing proposition for investors seeking potential returns. Holding these bonds until maturity could provide an average annual return of just under 6%. However, considering Fisker’s status as a speculative company that hasn’t yet turned a profit, this return may not be deemed favorable by all investors. Nevertheless, the fact that there is an option to convert the notes into stock if the company performs well adds further value to this investment opportunity.
Positive Market Response
Following the announcement, Fisker’s stock showed a 3.2% increase, reaching $6.61. In addition, futures for both the S&P 500 and the Nasdaq Composite saw positive growth with increases of 0.7% and 1% respectively.
A Common Practice with Uncommon Effects
While the issuing of convertible notes or stock offerings often leads to a decline in a company’s stock price, Fisker has defied this trend. By offering more shares, existing shareholders will have a slightly smaller stake in the company.
Fisker’s Future Share Issuance and Cash Position
The exact number of potential shares that may be issued upon conversion remains unknown as the conversion price was not disclosed in the recent news release. Despite this, Fisker has yet to respond to a request for comment regarding the matter.
In the event that the bonds do not convert into stock, Fisker will be required to repay them. These notes are due within the next few years, during which Fisker is not expected to generate profitability. However, the absence of interest payments allows Fisker to preserve its cash reserves until then.
As of the end of the second quarter, Fisker’s cash position stood at approximately $522 million, excluding $300 million generated from a convertible note offering in July, as well as $33 million in tax refunds.
According to Wall Street projections, Fisker is expected to utilize around $100 million per quarter in the near future.
Fisker’s stock has experienced a 14% increase this week leading up to Friday’s trading session. This boost was triggered by Tuesday’s announcement, in which Fisker disclosed its production of 5,000 Ocean SUVs in collaboration with Magna International (MGA), and the intention to escalate production to 300 units daily in the fourth quarter. These developments suggest that Fisker is on track to achieve its 2023 production target of 20,000 to 23,000 units.
Over the past year, Fisker’s stock has observed a decrease of around 12%.