The Big Un Ltd (ASX: BIG) share price fell 30% to $1.95 this morning after the company released an announcement yesterday afternoon, and Fairfax Media published a piece on it overnight.
Big Un announced that it had a relationship with FC Capital through its Finstro platform, which is a small business lender. Finstro appears to provide funding to Big Un that lets Big Un offer interest-free payment terms to its customers.
The AFR reported that Big Un – which doesn't receive any commissions from Finstro – has been issuing shares to Finstro at steep discounts, with one issuance at $0.20c in January. Big Un's share price at the time was above $3. Management was quoted as saying that this transaction was entered into when the share price was $0.16c.
Fairfax media quoted firm Ownership Matters on the share issues, saying they "raised questions about the quality of Big's cash flows given its prolific issuance of deeply discounted stock to undisclosed service providers."
The potential concern appears to have been that there may be related party transactions with the issuance of discounted shares. For example, people close to Big Un may have been issued with shares at a discount, which they could sell at a profit. Alternatively, Fairfax may be trying to say that Big issued shares to related parties in return for those related parties directing business to Big.
However, the media article is quite circumspect and does not appear to level any allegations at Big Un directly. The AFR also appears to have failed to make the link to any related parties to the transactions.
Big Un stated in its announcement that it may start to use its own balance sheet (which has plenty of cash) to start providing alternative financing solutions to customers. This may suggest a move away from Finstro, or alternatively it may suggest customers are requiring increasingly larger amounts of finance, which would be problematic. For now I would watch this one from the sidelines.
