Globo revelations stun high-yield

By Robert Smith

LONDON, Oct (HKSE: 3366-OL.HK - news) 28 (IFR) - Globo plc (LSE: GBO.L - news) 's announcement that it is under investigation from the FCA has shocked high-yield investors that the British mobile technology firm recently tried to sell a bond deal to.

Trading in the AIM-listed firm's shares have been suspended since Monday, when its CEO and CFO resigned after disclosing financial irregularities at the company.

Globo had announced only days previously - on October 21- that it had postponed a proposed issue of senior secured high yield notes due to market conditions.

Imperial Capital had acted as book-running manager with ISM Capital (Other OTC: CGHC - news) as international co-manager.

One fund manager that said that while his firm had decided not to invest in the deal, he had no inkling that there was any "foul play" on the part of the issuer.

"The business actually looked pretty good on paper, and the yields they were offering started to look attractive," he said.

According to documents seen by IFR, Globo first tried to sell an US$180m five-year non-call two senior secured deal in June. But after market push back, the trade was switched to a US$130m 5NC3 deal in August.

Leads tried to sell the deal unsuccessfully at a 94 OID with a 10.375% area coupon, according to the documents.

"First (Other OTC: FSTC - news) they tried to sell it at 7%, then at 9%, then at 11%, then they said they'd do a private deal," the investor said.

Globo said the bond would refinance 45m of debt. The company had 108m earmarked for general corporate purposes, including future acquisitions, at the original deal size but scaled this back to 58m when the deal was reduced to US$130m.

The company pegged its adjusted Ebitda in 2014 at 51.4m.

The revelations of financial irregularities this week came after US hedge fund and short-seller Quintessential Capital Management published a report last Friday that raised questions about Globo's revenue model and finances.

The report actually focused on Globo's attempt to tap the high-yield market as a source of concern.

"Globo's decision to raise funds in the high-yield bond market seemed strange for a company claiming large cash reserves," Quintessential's report said.

The bond documents listed 82m of "actual" cash on balance sheet as of December 31, 2014, but said it would have 140m after raising the US$130m bond.

Globo was looking to issue the bonds out of its subsidiary Globo Mobile Inc. (US), although they would have been guaranteed by parent company Globo plc. (Reporting by Robert Smith)