Protective clause for $500 million share buyback could be expensive for Ripple
- A recent Ripple share sale offers investors guaranteed returns through buyback rights and a protection clause – it could be expensive for Ripple.
- Safeguards tie profits to XRP exposure and provide large funds with a cushion against crypto fluctuations.
Ripple’s recent $500 million share sale has come under fire after details emerged showing investors were granted terms designed to protect returns regardless of market performance. Participants, including Citadel Securities and Fortress Investment Group, will be allowed to sell their shares back to Ripple after three or four years at a fixed annual return of 10%, provided the company does not go public before then.
Sea Bloomberg kept himself Ripple too reserves the right to repurchase the shares during the same period, but under more demanding conditions. If Ripple decides to buy back, it would have to pay out an annual return of 25%.
This structure appears to protect investors from the risk of loss and guarantee a profit even if Ripple’s value stagnates or the crypto market weakens. The group of investors includes big names such as Marshall Wace, Brevan Howard, Galaxy Digital and Pantera Capital.
Share buyback could cost Ripple $732 million
If Ripple were to buy back the shares after four years at a 10% annual return, the company would have to raise $732 million. This figure reflects the cost of meeting the guaranteed return included in the agreement.
The share sale also included a liquidation preference clause that gives new investors priority over previous shareholders if the company is sold or goes bankrupt.
Investor filings reportedly show that about 90% of the company’s total net assets are tied to XRP, the company’s proprietary digital token. This shows that investing in Ripple in this case is a big bet on the future development of XRP.
As of July, the company held about $124 billion in XRP, with much of it either locked or gradually being released. Since mid-July, XRP has lost over 40% of its value and has fallen 16% since October 31st. XRP is currently being used at 2,09 $ traded, resulting in an increase von 3,22 % in the last 24 hours.
Despite these market fluctuations, recent investor protection measures have helped the company maintain a valuation near $40 billion during the funding round. This suggests that traditional financial players are seeking downside protection when entering crypto companies and are treating them more like structured finance products.
No Comments