This Post Market Wrap is presented by KOSEC – Kodari Securities
- The terms of the note included an embedded option on the unissued block shares
- Redemption of Notes may result in reduced share price volatility
- Blockchain technology has the potential to redefine traditional banking solutions
- A significant advantage exists if the deployment of Blockchain technology is executed successfully.
Block Inc (“Block”) is a global financial technology company that provides financial services and payment solutions that enable businesses and individuals to participate in the digital economy.
Block acquired Australian listed entity Afterpay Limited (“Afterpay”) in January 2022 as part of a $A $39 billion deal that is Australia’s largest “merger-buyout” deal to date. Chess Depository Interests (“CDIs”) in the merged entity now trade under the symbol ASX, “SQ2”.
Withdrawal from the S&P/ASX 20 index
The quarterly rebalancing of the S&P/ASX 20 Index announced on March 21 saw Block removed from the index as its CDIs no longer meet the liquidity and other criteria that must be met to be included in the index. The removal immediately led to higher than normal selling activity the day after the announcement as index funds rejected CDIs in accordance with their mandate to hold only ASX 20 shares in their portfolio.
A$1.5 billion convertible note redemption
Block announced the redemption of A$1.5 billion zero-coupon convertible bonds (bonds), due 2026. This follows bondholders requesting redemption pursuant to the indenture under which the bonds were issued in March 2021. The interest-free convertible bonds can be converted into Block shares at a conversion price of 35% to 45% premium to the last closing price in 2026.
The redemption of the convertible bonds will simplify the Group’s capital structure by eliminating delta hedging and short selling activities which add to share price volatility, for negligible benefit to the Group. These activities are carried out by hedge funds and other sophisticated investors who benefit from arbitrage opportunities around the equity option created by the conversion conditions of the Notes. The higher the level of volatility in the price of the underlying shares, the greater the value of the equity option embedded in the convertible notes. The redemption of the Notes should be accompanied by a reduction in the volatility of the Bloc’s share price.
Block is building a financial services giant that embraces blockchain technology. This explains the name of the company, ‘Block’. Blockchain technology allows data to be transferred securely thanks to its unique and extremely complex encryption system. It monitors and records every movement of cash in such a way that it cannot be deleted or altered. It is essentially a digital event book, where the transfer of information does not require a centralized intermediary like a bank to identify and certify the information.
The consolidated statements of income for the December 2021 fiscal year show gross profit of $4.42 billion, up 36% from the prior year. US$2.2 billion, or 49% of this gross profit, came from revenue based on subscriptions and services. This segment includes 30 software, hardware and financial services products that are monetized through a combination of transaction, subscription and service fees payable by individuals and merchants.
In this way, Block seeks to redefine the world’s relationship with money by making it more accessible, instantly available and universally accessible by enabling consumers to easily store, send, receive, spend and invest their money. . Block is a founder-led company with a platform that uses Blockchain technology to redefine the way consumers pay merchants for their products. This technology has the potential to transcend traditional banking solutions and pave the way for consumer and merchant transactions, without the need for banking institutions.
Block is a forward-thinking company that uses breakthrough technology to deliver services traditionally provided by banking institutions. It is not without risk, however, a significant economic benefit exists if the deployment and adoption of this technology can be successfully executed by Block.
This Post Market Wrap is presented by Kodari Securities, authored by Michael Kodari, CEO of KOSEC.