Late this afternoon, China Yunhong Holdings (ZGYHU) made a surprise appearance by filing an amended S-1, indicating their IPO is back on. However, the terms have been changed so this is the “new”, revamped China Yunhong.
Just to recap for a moment, China Yunhong originally filed it’s first S-1 back at the end of June, with terms that were atypical of the smaller, Asia-focused deals. That is, they filed with one full warrant, 18 months duration, and a warrant call trigger of $18.00. However, it seems China Yunhong has decided to now revert back to the standard smaller deal structure and file with 1 warrant for 1/2 share, 12 months duration (plus three 3-month extensions for $0.10 to trust for each extension), and a warrant call trigger of $16.50. Plus, they’ve also added a right to the unit (1/10). Lastly, the new amended S-1 has added five new team members, whereas in the original filing, Mr. Yubao Li was the only team member listed.
As for the new team, Mr. Andrey Novikov, who is currently on the board of Qpagos (OTC: QPAG), a US-based provider of physical and virtual payment services in the Mexican Market, as well as previously served as an advisor of QIWI PLC (NASDAQ: QIWI), a payment services provider in Russia, will now be the CEO. Mr. Yubao Li, who was previously Chairman and CEO, will be just Chairman.
So, again, while the team is now fully fleshed out, the terms have reverted to the standard smaller deal-size playbook. Is that a good thing? Well, as was discussed previously, deals that have a right included in the unit have historically not done well. In the past three years, only one deal with rights – Atlantic Acquisition Corp. (HFFG) – has managed to trade above the $10.00 level post-combination closing. And Atlantic had an unusual structure in that it ONLY had a share and a right, no warrants were included in the unit. (note: technically, you can also include Forum Merger I as a successful SPAC with rights since it’s combination (ConvergeOne) was bought post-merger for $12.50 by CVC Fund VII. However, Forum originally did a PIPE at $8.00 per share as part of its transaction).
Nonetheless, if the feedback the bankers received was that investors wanted an amended structure with rights, then feeding the beast by giving them those terms is one solution. However, over-funding the trust at 101%, or $10.10 in trust at IPO, could have been another solution (or at least one I wish they had considered). Given that we are now in a falling interest rate environment and that earned interest is looking a little lean, which is more palatable? — one full warrant and $10.10 in trust? Or, one warrant for 1/2 share and a right at $10.00 in trust? Plus, if a combination is not a clear-cut winner at the shareholder vote, then rights usually end up being share price killers post-close (a large number of redemptions = low float, followed by an influx of rights shares looking to sell immediately).
This is all academic, but it is interesting that teams are still opting to include a right in the unit. However, the revised terms below are what China Yunhong is currently working with. If any additional changes are made, an update will be provided.