Mr Horizontal
Gallente
KIA Corp
KIA Alliance
   |
Posted - 2008.07.18 15:17:00 -
[1]
Put simply Treasury Stock in EVE would be shares that have been bought back and sitting in BMBE's wallet, effectively unissued shares.
I'm at work so not in game and don't have reference to BMBE's IPO documentation either, so am doing this from memory. Say BMBE issued 2000 shares at 50m each to create a marcap of 100b. This is by all intents and purposes now a debt to BMBE. It then leverages 80% of this ISK, thus creating a nice income stream. The remaining 20% is it's liquid reserves.
Now things are good, and that 85% leveraged capital is producing enough revenue to pay the debt via dividends to shareholders. This is what you experienced when BMBE was in full flight under Ray's helmsmanship.
The treasury stock system was then introduced, because in light of the secondary market and stiff competition from competitors, BMBE could potentially have a tough time earning money from loans, and was looking at its risk exposure in light of the changing landscape and this mechanism is as a result a safety net.
What it does is when BMBE has 100b, and say BMBE is earning 12.5b income and suddenly 30% of it's leveraged loan falls off it's books, because a debtor pays it all back and moves away, then suddenly, BMBE's income drops proportially as well.
As such, in order to remain healthy, BMBE can choose to buy back its shares at 90% NAV, which devalues the whole corporation, but at the same time, readjusts the percentages back into normal operating positions.
tl;dr, Treasury Shares allow BMBE to shrink itself proportionally to any event threatening liquidity that has happened so it can ensure operation in its comfort zones, and be able to react rather than sitting on a pile of unleveraged (and not-earning) ISK, with a huge price tag on it.
Director | www.eve-bank.net |
Mr Horizontal
Gallente
KIA Corp
KIA Alliance
|
Posted - 2008.07.18 18:12:00 -
[2]
My opinion is structurally BMBE is 100% fine, but it requires a helm.
I did sell out the minute Ray announced he was stepping down, but I'd really, really like BMBE to be on it's feet again. With FIN and Ionia gone, there are just too few 'blue chip' stocks left.
Director | www.eve-bank.net |