Scalare Partners Raises $5 Million Convertible Note Facility Subject to Approvals

Convertible Note Facility Provides Flexible Capital

Scalare Partners Holdings Limited (ASX:SCP) has secured a binding commitment for a $5 million convertible note facility from The Blackstone Mercantile Group Ltd. SAC, with the option to raise up to $25 million over 12 months. The initial tranche includes a $500,000 immediate loan, followed by a $4.5 million tranche pending shareholder approval. Additional tranches up to $20 million are subject to investor request and company consent.

The convertible notes carry a fixed conversion price of $1.00 for the first tranche and $2.00 for later notes, with a 10% annual interest rate capitalised monthly. Importantly, the investor’s holding is capped at 19.99% of issued capital, preventing excessive concentration. Conversion can occur at the investor’s option within 20 business days or automatically thereafter, subject to the ownership cap.

Share Consolidation and Bonus Issue to Cushion Dilution

To facilitate the deal, Scalare will propose a 60:1 share consolidation at the upcoming shareholder meeting, a move recommended by the board. Should shareholders reject the consolidation, the initial $500,000 loan will be repaid immediately in shares at $0.167 per share.

To mitigate dilution from the convertible notes and the consolidation, Scalare plans a non-renounceable bonus option issue. Shareholders will receive 8.7 new options for every 10 shares held, exercisable at $0.01 between February and March 2027. Exercising these options grants one share plus an additional "Piggy Back" option exercisable at $0.02 through March 2028. These options are unlisted and non-transferable, designed primarily to protect shareholder value rather than generate speculative gains.

Funding Positioned Against Alternative Capital Raises

The company’s CEO, Carolyn Breeze, emphasised the facility’s flexibility and favourable terms compared to other funding options. Scalare had considered traditional placements and floating conversion price notes, which typically carry higher dilution and market overhang risks. This fixed-price facility, combined with the consolidation and bonus issue, aims to provide a more balanced outcome for existing shareholders.

Scalare’s business model focuses on advising and investing in early-stage technology companies, with a current emphasis on Australia and the USA. The company has struggled to meet its target of investing in eight startups annually due to financial constraints. This new capital injection is intended to support new investments, marketing efforts via an independent group Fairfax, and general working capital.

Governance and Relationship Agreement with Investor

Alongside the funding, Scalare has entered a relationship agreement with Blackstone Mercantile that governs voting rights and operational independence. The investor commits not to influence day-to-day management or vote on transactions involving itself, ensuring Scalare’s governance aligns with ASX Corporate Governance Principles.

The agreement is standard for this type of investment, with provisions to prevent the investor from blocking regulatory compliance or attempting to delist the company without broad shareholder support.

Dilution Impact and Shareholder Considerations

Detailed annexures outline dilution scenarios based on different levels of note conversion and option exercise. For instance, converting 5 million notes without exercising bonus options could dilute existing shareholders by up to 67.2%. However, if all bonus options are exercised, dilution falls to 42.8%. At the maximum $25 million conversion, dilution could reach over 80% without option exercises but reduces substantially with full option uptake.

Scalare’s limited daily trading volume and recent share price weakness have constrained traditional capital raises, making this convertible note facility a strategic alternative. The board believes the terms are superior to other offers and in the best interests of shareholders.