Jumia Underwriting Agreement: An Overview
Jumia, Africa`s leading e-commerce platform, recently announced that it had signed an underwriting agreement with leading global banks. The underwriting agreement is worth €200 million and comes in the form of a convertible bond offering. The offering will be issued in two tranches and is set to be completed in early 2021.
The underwriting agreement is a significant step towards the company`s goal of becoming profitable by 2022. The funds raised will be used to strengthen Jumia`s balance sheet, finance its operations, and support its growth plans.
What Is an Underwriting Agreement?
An underwriting agreement is a contract between a corporation issuing securities and an underwriter that guarantees the sale of a specific number of shares at a specific price. The underwriter agrees to purchase the shares from the issuer and then sell them to investors.
In the case of Jumia`s underwriting agreement, the underwriters are a group of global banks, including Morgan Stanley, Citigroup, and HSBC. They have agreed to purchase the convertible bonds issued by Jumia and then sell them to investors.
What Is a Convertible Bond?
A convertible bond is a hybrid security that combines the features of a bond and a stock. It is a type of debt security that can be converted into a specified number of shares of the issuer`s common stock. The conversion feature allows the investor to benefit from any increase in the stock price while also providing a fixed return if the stock price does not rise.
Jumia`s convertible bond offering is convertible into ordinary shares of Jumia. The conversion price and the number of ordinary shares will be determined at the time of conversion.
Why Is Jumia Issuing Convertible Bonds?
Jumia is issuing convertible bonds because it is an attractive way to raise capital. Convertible bonds provide the company with the flexibility to sell debt while also providing the potential for equity upside. If the stock price rises, the convertible bondholders can convert their bonds into shares of Jumia, which can provide a higher return than the original bond investment.
In addition, convertible bonds are less risky for the investor than common stock. If the stock price falls, the investor still has the fixed return from the bond. This makes them more attractive to conservative investors who want to participate in the growth potential of a company but are not willing to take on the risk of equity investments.
Jumia`s underwriting agreement and convertible bond offering are significant steps towards the company`s goal of becoming profitable. The funds raised will enable the company to finance its operations and support its growth plans. The underwriters, a group of global banks, have agreed to purchase the convertible bonds issued by Jumia and then sell them to investors. The convertible bond offering is an attractive way for Jumia to raise capital while providing the potential for equity upside. It is a less risky investment option for conservative investors who want to participate in the growth potential of a company without taking on the risk of equity investments.