IQE, The Long and the Short of IQE?
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PS. I have just spotted that the IQE CEO has sold 11million shares (c£4.8) on 2 Aug to EFH and agreed to buy them back in three years time, so as to pay a PAYE tax liability of c £2.5million. The RNS fails to explain the monetary values and assuming, I have my sums right, then the reasons of why the CEO needs a net extra £2.3million. see RNS below.
Under the terms of the Agreement, he is obligated to repurchase (and EFH is obligated to sell to Dr Nelson) all these EFH Sale Shares at the end of a three year term, ending on 02 August 2022. The price at which he has sold and is required to repurchase the EFH Sale Shares is 43.96 pence per share. The Agreement provides that he has transferred all title and waives his voting rights in these EFH Sale Shares. However, under the terms of the agreement, EFH is prohibited from short selling or voting the EFH Sale Shares during the term of the agreement. Furthermore, EFH will pay Dr Nelson income that reflects any dividends as they arise from all of these EFH Sale Shares during the entire period, as if Dr Nelson had continued to own all the EFH Sale Shares himself.
The monies raised will principally be used to satisfy income tax and NI obligations following the exercise of 7,681,199 share options by Dr Nelson, as announced on 29 April 2019. Under HMRC rules, income tax and National Insurance becomes payable through PAYE directly upon the exercise of share options. Consequently, Directors often need to immediately sell at least half of the exercised shares to cover this tax and NI liability. In the case of Dr Nelson, he has elected to raise the tax and NI monies through these arrangements in order to retain all of the ordinary shares resulting from the exercise of share options, thereby maximising his overall shareholding in the Company. The remainder of the monies raised are intended to be used to fund future tax liabilities and NI due on the exercise of share options if they arise, as well as fund further potential share purchases and cover any margin calls which may occur under the Agreement. The share option exercises of 29 April were part of IQE’s LTIP, and Dr Nelson was under no time obligation to exercise such share options, but chose to do so at this time in order to maximise his shareholding in the Company. He used an identical share sale and repurchase agreement with EFH in October 2014, for the same purposes, which resulted in the repurchase of 18,000,000 ordinary shares by Dr Nelson from EFH in September 2017.
The more normal approach is for an executive without large personal wealth to sell part of his LTIP award, and schemes can be constructed so that the award net of taxes is made in shares and the tax liability is then paid by the company, thus reducing dilution and the need to sell shares in the market. With the shares heavily shorted, one wonders if this influenced the decision in April as another few million of shares being sold would have put further downward pressure on the share price.
Declaration I have just sold my IQE shares and no longer own any IQE shares.
Update 16 February 2022. Dr Nelson has recently bought £1.5m of shares according to reports today. Tom Winnifrith of ShareProphets explained what is happening. The shares have popped up to 41p today from a recent low of 30p.
I like skin in the game, but I also like transparency. I like RNS’s to be clear, transparent and not misleading and to understand today’s RNS requires quite a lot of investigatory digging.
Declaration: I do not own IQE. I used to but sold in August 2019.