The Pacific Current Group Ltd (ASX: PAC) share price is under the spotlight as the fund manager GQG Partners gets closer to listing.
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What are these two businesses?
GQG Partners is a large, global fund manager that is looking to list into the ASX. It operates a number of different strategies including global shares, dividend shares, US shares and emerging markets shares.
Pacific Current is an investment business that partners with asset managers across the world that invest in various asset classes. It's invested in a number of fund managers across the world including GQG Partners, Astarte Capital Partners, Victory Park, ROC Partners and so on.
GQG Partners initial public offering (IPO)
Pacific noted on Thursday that GQG Partners has today lodged a prospectus with the Australian Securities and Investments Commission (ASIC) for an initial public offering of CHESS depository interests (CDIs) over shares of common stock.
Around 20% of GQG's common stock is being offered to Australian and overseas investors in the form of CDIs for listing on the ASX.
Pacific originally invested US$2.7 million in GQG Partners to help launch the business in 2016. In return, Pacific received a 'preferred interest' that entitled it to 10% of GQG Partners' annual net revenue between US$5 million to US$50 million and 2% of all annual net revenue after that.
Its interest was also subject to a put/call arrange exercisable in June 2023. This arrangement would allow Rajiv Jain, GQG's chief investment officer, to purchase Pacific Current's interest in GQG Partners for 8x the prior year's gross revenue share paid to Pacific or for Pacific to sell its GQG interest to Mr Jain for 3x the prior year's gross revenue share paid to Pacific.
The Pacific share price could be affected by how the IPO will impact its holding of GQG Partners.
The transaction
Pacific Current said that its preferred interest will be exchanged for two things.
The first is that it will receive approximately 4% of the GQG shares (post-transaction), to be held in escrow until the end of the escrow period, which is expected to be late in August 2022.
It will also receive a cash amount of approximately 1% of the value of GQG at the IPO price, assuming the offer is subscribed in full (which is expected to approximately equal to 5% of the proceeds from the IPO), less costs.
Following this, the put/call arrangement will terminate.
After GQG lists onto the ASX, GQG's continued contribution to Pacific Current's underlying earnings will be reflected in the dividends received by the company from the shares it owns in GQG.
Two Pacific directors will become directors of GQG: Paul Greenwood, the Pacific Current managing director and CEO, as well as Melda Donnelly (who is a non-executive director).
Broker rating on the Pacific Current share price
The broker Ord Minnett currently rates Pacific as a buy with a price target of $8.30 as a result of the GQG Partners' expected IPO.
