Tecnotree’s largest owner takes over convertible debentures worth 20 MEUR

Translation: Original comment published in Finnish on 12/11/2023 at 7:12 am EET

Tecnotree's largest owner, Fitzroy Investments Limited has signed a binding agreement to acquire unpaid outstanding convertible debentures of EUR 20 million subscribed by Markku Wilenius. The news was awaited, but Tecnotree will probably have to wait a long time for the final funds. At the same time, it was also announced that Markku Wilenius has announced that he will resign from the company’s Board of Directors effective immediately.

The company may have to wait for the funds for a long time

In connection with the Q3 result, Tecnotree already announced that it had received a legally binding notice of interest for EUR 20 million convertible debentures subscribed by Markku Wilenius from an investment consortium led by Fitzroy Investment. So, the news was expected. However, the payment schedule was a surprise, as according to the agreement between Fitzroy and the company, Fitzroy will only have to pay the notes in Q4’25 at the latest. If the payment is delayed, Fitzroy is obliged to pay Tecnotree 18% of the outstanding subscription price (3.6 MEUR) as a contractual penalty. However, the maximum penalty is EUR 1 million once Fitzroy has paid Tecnotree at least EUR 10 million of the subscription price of the notes. If Fitzroy fails to pay its subscriptions and pays the penalty, the outstanding notes would return to the company and Fitzroy would be released from its payment obligations.

In addition, Fitzroy and Royal Front Investments Group have agreed that the latter will purchase the notes from Fitzroy by Q2’24 at the latest. It is therefore possible that Tecnotree will receive the funds in full already in Q2’24 at the latest.

Uncertainty surrounding the company’s financial situation prevails

The release naturally reduced uncertainty about the situation of the debentures subscribed by Markku Wilenius, but in the big picture there is still significant uncertainty surrounding the company’s financial situation. The company is expected to receive final subscriptions within two years. This also still involves uncertainty which we believe is indicated by the long payment period and setting a contractual penalty. In any case, a delay could have negative effects on, e.g., the company’s ability to make acquisitions which was one potential use of the funds.

By the end of Q3’23, Tecnotree had raised approximately EUR 14 million with the convertible bonds, and the release revealed the situation of the missing EUR 20 million. In addition, EUR 9 million is still missing from the issued subscriptions, the situation of which the company has not opened up. However, we consider it possible that the company will collect these or some of them during the rest of the year.

One of Tecnotree’s reasons for raising funds with compulsorily convertible debentures was that the dilution caused by the notes is delayed relative to the raised funds. This dynamic has now changed, as the company is possibly receiving part of the funds only in late 2025. The convertible debentures can be converted into shares at the earliest in summer 2026.

Our current forecasts expected that the company would collect the entire EUR 43 million subscriptions during the rest of the year. At least EUR 20 million is missing. However, this does not affect valuation multiples as the missing cash reserves are compensated with a lower debt volume. We will review our forecasts in connection with the Q4 result at the latest.