China Jo-Jo Drugstores (NASDAQ: CJJD) is exactly and precisely what the name suggests, A distributor of pharma and healthcare products in Mainland China. The quotation on Nasdaq was as part of that flood of Chinese IPOs a few years back. The structure is just as with all of them - a complex of derivatives inside a Cayman Islands company etc. The purpose of the quotation is obviously to be able to raise capital to finance the business. Which is what has just caused this 85% burn up of market capitalisation - a fund raise.
This is also perhaps a good example to others of how not to do a fund raise. Because no one is going to be happy about this result, no one at all. We also don't really know why the fund raise - the prospectus isn't at Edgar yet - and that's what's spooking people. For the terms of it were, umm, generous to say the least. What is it that drove such generosity? At the moment of announcement the CJJD stock was at $4.37. But the stock plus a warrant is being issued at $3.10. That's a 29% discount (ignoring the warrant) which is a pretty substantial discount for such a find raise. Clearly trying for something at closer to market price was something management thought wouldn't work. So, why?
China Jo-Jo Drugstores stock price from NASDAQ
The issue was through a shelf registration from December, so there's clearly some urgency to the issue backed up by that large discount. So, is there some disaster in there that we don't know about? The announcement is only that the fund raise is for general capital requirements etc.
That's what worries - why now and why at this price? Why does CJJD need $7 million that badly? It's that lack of information which leads to the stock price dropping to 68 cents (true, it rose 15 cents after hours but still) and thus the single investor who bought in at $3.10 has just lost a substantial amount. Just on the news that the investor has bought in.
As we say, no one's happy about this, extant investors, the new investor, so why has it been done? What happens next to the CJJD stock price will depend upon what the prospectus says once it has been published. If it was just an opportunistic fund raise - hey, an investor is willing to buy so why not? - then we might well see a full recovery and more. But if it's a matter of desperation, some gremlin means that cash is needed right now then who knows?
