Shares in The9 Ltd. (Nasdaq: NCTY) tanked 41% Wednesday – below its offer price of 37 cents per share.
The troubled Chinese mobile game developer is hoping to raise $8.7 million in a follow-on offering of 23.5 million of its American depositary shares and warrants.
The terms were downsized from the $20 million The9 targeted in an early August filing. At the time of the initial application for a follow-on public fundraising, its stock wavered between 76 cents to 81 cents per share.
On Wednesday, the pricing of the offering sent the company’s stock tumbling from yesterday’s close of 52 cents per share to 31 cents per share by midday.
Maxim Group LLC is acting as the sole book-running manager on the deal. It may acquire an additional 3.5 million ADSs and/or warrants at the set price 45 days after the offering, according to company statement.
The9 said it plans to invest in mobile games development and general corporate working capital, make a game license fee payment, and for hyper-casual game operations.
The9 has been ridden with troubles over the past few quarters. The company positions itself as an internet company, but it primarily operates self-developed and licensed mobile games, including its proprietary CrossFire New Mobile Game and Audition.
Last week, The9 announced it has teamed up with a French game developer and publisher, Voodoo. The two will collaborate on casual games in mainland China, The9 said.
The9 has also ventured into other projects and said in its filings that it is “in the process of identifying alternative business development focus.”
For example, last year, The9 had attempted to delve into the electric vehicles market by partnering up with struggling Faraday Future Inc. At the time, The9 said it would invest up to $600 million to take a 50% stake and control the business operations in a joint venture company that it would build together with Faraday. However, in an August filing, The9 said the deal fell through; no payments have been made toward the JV.
NCTY shares have traded below the $1 level for most of 2020 – leaving the company open for Nasdaq’s delisting threats. The Covid-19 outbreak – while it had negatively impacted The9’s operations like those of all other businesses – saved its stock from being delisted earlier. Due to the pandemic woes, the stock exchange had eased the rules somewhat, extending the period during which a company could regain compliance.
However, in April, the Nasdaq issued new regulations, deeming a company open for immediate delisting if its securities closed below 10 cents or less per share for a period of 10 consecutive trading days. Further, if the noncompliant company, unable to meet $1 minimum bid requirement, had implemented one or more reverse stock splits resulting in a cumulative share ratio change of 250 to 1 over the past two years, the Nasdaq may immediately delist that company as well.
With warrants and ADSs are priced at 37 cents, hopefully the stock will trade around 30 to 37 cents as a new, albeit unfortunately lower floor. Of course, the floor was just lowered, and can easily be lowered even more.
The9’s new share offering is not yet scheduled on the Nasdaq.