Special Alert: VelaTel Global Communications (VELA) Closes China Motion Acquisition As Promised!
By Tobin Smith | March 6, 2014, 5:09pm GMT
Special Alert: VelaTel Global Communications (VELA) Closes China Motion Acquisition As Promised!
Buy under 0.015 and hold till 2017!
Short Version: As VELA management promised in early January, with the delivery of the final $2.48M payment on Feb 28th, VELA has closed the acquisition for 100% of the outstanding shares of CM Mobile, the Hong Kong based mobile virtual network operator (MVNO) serving over 125,000 subscribers in China, Hong Kong, Taiwan and Macau with 75% discounted voice/data roaming service for their mobile devices.
VELA has taken full control of the company—deal done. VELA will now 100% consolidate and report on CM’s @$1.4M of cash in the bank and its $140,000 average monthly cash flow.
More important…VELA reports they are approximately 60 -80 days away from completing the game-changing 40X expansion of their CM Mobile network from 150,000 total capacity to 5 MILLION simultaneous user capacity—a 40X larger network that will be state-of-the-art 4G voice and data network.
Key Point: When this new 5 million subscriber 4G network capacity is fully tested and functional, StarHub Pte, Ltd—the $2 billion annual sales wireless/telco/cable carrier from Singapore—will begin to expand their relationship with CM Mobile to include the migration of as many as >2Million of their existing non-resident pre-paid phone card subscribers.
CM Mobile’s marketing agreement with StarHub will share all renewing pre-paid phone card customers NOT domiciled in Singapore in return for revenue share with CM Mobile. This sharing deal provides great value to StarHub phone card customers: up to 9 local phone numbers to StarHub’s subscribers on the CM Mobile network for 75% discounted voice/data roaming including PRC China and Hong Kong!
CM Mobile provides their MVNO network and customer service to that shared customer base in return for substantial revenue share arrangement.
Key Point: NBT Research estimates each new 4G MVNO subscriber at @$65-$75 value—NBT estimates one million plus new StarHub subscribers will migrate to the CM Mobile 4G network over the 1-2 year ramp-up period.
Why? Again…the renewal offer to the 2M+ StarHub pre-paid users is just too GOOD to pass up—75% discount on ALL Asia roaming including PRC China and Hong Kong and up to 9 local phone numbers—right now they have one number and no discount roaming in China/Hong Kong/Macau/Taiwan!
At a $75 million market value (1Mx$75) for CM Mobile…and VELA retaining 51% CM Mobile equity…VELA shares would be worth or $27 million—or a near 15-bagger from current valuation.
Bigger Point: If as we assume VELA also fulfills its pledge to repay outstanding promissory notes in cash this year and CURRENT shareholders effectively buy back a large amount of Class A VELA shares to hold for eventual CM Mobile IPO…the outstanding VELA float should be SIGNIFICANTLY lower.
THEN VELA buys back its shares leading up to CM Mobile IPO—what could make more sense?
Where does cash come from to pay off outstanding notes?
The $1.5 million loan from Tai Chun-Ya (part of closing proceeds) has a reserve account of $1 million of CM Mobile cash. Additional cash flow gets added to the reserve.
NOTE: We assume the $1.5M note with interest is PAID off July 26th…it’s intended as a friendly short term bridge loan only and NOT a long term investment.
Sale of the Balkan Regional 4G networks and spectrum AFTER the upgrades to network are up and running—we project $8-$10M minimum for the spectrum alone—it could be 2-5 times that amount in reality. Subtract equipment loans or netting them out of sales price would generate many $millions in cash for VELA. Could happen end of 2014 at earliest.
VN Tech fuel cell delivery profits in 2014? We have not mentioned how HOT the industrial fuel cell business is (look at the charts of PLUG/HYGS/BLRD—OY!) and how Nokia and ZTE are now selling fuel cell back-up power systems to the new 225,000 4G wireless towers being installed in mainland China. Since VELA’s VNTech’s fuel cell back-up power systems are already approved with tower OEM ZTE—the primary cell tower building contractor—we have to assume that VN Tech equipment will be sold into thousands and thousands of new 4G wireless transmission stations/towers. Management is not saying when…but their solution is fully certified with PRC, made in China and is a LOT cheaper than the PLUS solution…a LOT.
CM Mobile/StarHub shared cash flow. VELA management is optimistic that the ramp of the shared pre-paid discount customer subscribers will be rapid as issued cards expire and get renewed with the great 9-local number/70% discounted roaming including China & Hong Kong deal.
Final Deal Points
#1 Tai Chun-ya Loan…$1,500,000 calls for repayment July 26 2014 OR convert to 15% of CM Mobile or an implied value of $10M for CM Mobile. $1M of CM cash goes into an escrow account …and additional cash flows above working capital needs.
Management assumes the note is repaid and NOT converted. They have the cash and cash flow…and the conversion price implies $10M value for CM Mobile---VELA is looking for $100 million or more down the road with their 5 million capacity and co-marketing deals.
#2 AQC has option but not obligation to sell StarHub shares up to 25% equity…since those shares would be valued at then current market value of CM Mobile in the future (assuming sub count and revenues substantially higher than today) our assumption is they would be NUTS not to take the huge profit at the then value. They still would hold 25% of CM Mobile less IPO dilution…a major home run.
#3 To extend ACQ loan past 2017 CM Mobile would pay 3% of $2.63 million or @$79,000 every 90 days after March 3, 2017 to extend. OUR most logical assumption is CM Mobile does an IPO on the Hong Kong exchange in early 2017 or late 2016—and that note gets paid off and StarHub exercises its 25% option at the pre- IPO underwriter valuation—that scenario makes the most sense.
Conclusion: We put VELA on our “Turnaround Transformation” buy list in January because of this trans formative deal for VELA…which at 0.011 share price today has a market cap of just $1.8 million (based on fully diluted 1.8 billion shares outstanding and our assumption of repayment in cash of any outstanding promissory notes). 51% of the $10M current value is @$5M in market cap and $1M of that is in cash.
The only outstanding issue in our mind is the conclusion of the ongoing dispute with IronRidge Capital…the viperous equity investor who has been the main cause of the mass dilution of VELA shares at these insane valuations.
VELA Management is “working on it” and we can assume that with their new found financial stability and expedited outcome is the best for both parties.
VELA… Buy under 0.015 and hold till 2017! It’s still the turnaround story of 2014—and AGAIN—put a few thousand in and don’t look at those shares again till CM Mobile IPO.
Disclosure: NBT and affiliates own 10 million shares of VELA and plan to add more shares opportunistically.
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