SEC Company Response from Mercurity Fintech Holding Inc. (MFH) (CIK 0001527762) (CD) — Mar 26, 2015
Mercurity Fintech Holding Inc. (MFH) (CIK 0001527762)
Date: March 26, 2015 · CIK: 0001527762 · Accession: 0001104659-15-022972
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-201413
Letter
Division of Corporation Finance Securities and Exchange Commission Re: Wowo Limited Responses to Comment Letter Received on March 18, 2015 In connection with Registration Statement on Form F-1 File No. 333-201413
Dear Ms. Jacobs, Ms. Lindsey, Mr. Gilmore and Mr. Crispino:
Wowo Limited (the “Company”) has requested us to respond to the Staff’s comments as set forth below. The numbered paragraphs below correspond to the numbered paragraphs in the Staff’s comment letter, which have been retyped herein in bold for your ease of reference. The page numbers in our comments refer to pages in the Registration Statement to be filed as Amendment No. 4, pages of which are attached hereto as Exhibit A.
The Company notes that the discussions contained below may contain forward-looking statements that involve risks and uncertainties, including statements based on our current and past expectations, assumptions, estimates and projections. Our actual results could be materially different from such expectations, assumptions, estimates and projections.
General
1. We note your response to prior comment 2. It appears that investors will be required to fund accounts with the underwriter or syndicate members prior to satisfaction of the offering contingency. In the absence of an escrow arrangement or separate bank account as outlined in Rule 15c2-4, this procedure appears to be inconsistent with the requirements of the rule. Please revise your offering.
ALKHOBAR ·AMSTERDAM·ATLANTA ·BEIJING ·BOSTON ·BRUSSELS ·CHICAGO ·CLEVELAND ·COLUMBUS ·DALLAS
DUBAI· DÜSSELDORF·FRANKFURT ·HONG KONG ·HOUSTON ·IRVINE ·JEDDAH ·LONDON ·LOS ANGELES
MADRID ·MEXICO CITY ·MILAN ·MOSCOW ·MUNICH ·NEW YORK ·PARIS ·PITTSBURGH ·RIYADH ·SAN DIEGO
SAN FRANCISCO ·SAO PAULO ·SHANGHAI ·SILICON VALLEY ·SINGAPORE ·SYDNEY ·TAIPEI ·TOKYO ·WASHINGTON
The Company acknowledges the Staff’s comment and (with the assistance of the managing underwriter) has revised its offering in the Amendment 4 to reflect a firm commitment underwriting. As more fully described in our response to Comment 2 below, investors opening accounts with the underwriter or syndicate members are not required to fund such accounts prior to effectiveness of the Registration Statement.
2. We note that investors participating in the offering who do not have trading accounts with the managing underwriter or syndicate members will be required to set up such accounts. Please provide more details on the requirement to set up such trading accounts, including a discussion as to how the procedure complies with Section 5 of the Securities Act. Refer to Release No. 33-5071 and Question 139.26 of our Securities Act Compliance and Disclosure Interpretations.
The Company acknowledges the Staff’s comment and (with the assistance of the managing underwriter) has revised its offering in Amendment 4 to reflect a firm commitment underwriting. Below the Company provides a summary detailing the requirements to set up trading accounts with the managing underwriter and syndicate members. Because these accounts are not required to be funded until immediately prior to closing of this public offering (after effectiveness of the registration statement) or prior to purchase of another publicly traded security, the Company believes this construct is in compliance with Section 5 of the Securities Act.
· Leading up to pricing and closing, potential investors are approached to determine interest in participating in the offering. If a potential investor indicates an interest in participating in the offering, but does not have an existing account with the managing underwriter, the managing underwriter will initiate its new account opening process (the “New Account Process”), that is used by the managing underwriter and its clearing firm, National Financial Services LLC (“NFS”), to ensure that all newly opened accounts are done so in compliance with applicable SEC and FINRA rules and regulations including, investor suitability and anti-money laundering rules and regulations. This process is undertaken for the opening of all accounts with the managing underwriter.
· The New Account Process includes completion of a “Brokerage Account Application” which elicits information necessary to (i) determine investor suitability for the offering; and (ii) investor compliance with applicable SEC and FINRA rules and regulations.
· The New Account Process also includes completion of an IPO Certification Letter which is used by the managing underwriter to ensure compliance with NASD Rule 2790’s restriction on the purchase and sale of initial equity offerings.
· The information contained in the Brokerage Account Application, which is also submitted to NFS, is used by the managing underwriter (and NFS) to perform due diligence and conduct background checks on the potential investors. Upon completion of the New Account Process and approval by the managing underwriter and NFS, the potential investor is then able to open a new account with the managing underwriter. Such account is:
· non-discretionary and controlled solely by the potential investor.
· not required to be funded until immediately prior to making a trade.
· If the potential investor wishes to participate in the offering, such potential investor will not be required to fund his account until after effectiveness of the Registration Statement, immediately prior to closing of the offering. The potential investor may wish to pre-fund the account in anticipation of effectiveness of the Registration Statement and pricing, but that is not required by the managing underwriter.
· Following effectiveness of the Registration Statement and pricing, the managing underwriter will allocate the underwriting discount into the selling concession and management fee. In connection with the sale of securities, the total amount of securities to be sold in the offering are allocated (“ticketed”) by the managing underwriter and syndicate members among individual investors on the date immediately following pricing. With respect to the managing underwriter, order tickets are executed and confirmations are generated detailing offering price, securities purchased, amounts due within three (3) days, settlement date and the final prospectus is delivered. Each investor then wires the requisite purchase price out of such investor’s account (if prefunded) or funds the account in order to allow for the wire to the underwriter’s clearing firm, National Financial Services LLC (a registered clearing firm and DTC member (the “Clearing Firm”).
· All sales of the Company’s securities will take place after effectiveness of the Registration Statement in compliance with Section 5 of the Securities Act.
Prospectus Cover Page
3. We note the disclosure on pages 12 and 157 that the company will only effect this offering if the following four conditions are met: (1) the offering is conducted through a best efforts underwriting targeting US$60 million with minimum proceeds of US$40 million, (2) at least 70% of the proceeds in the offering are attributable to new investors, (3) the market value of the company immediately prior to the offering based on the offering price equals or exceeds US$253 million, and (4) the offering is completed prior to March 31, 2015. Please disclose all four conditions on the cover page and in the risk factors and underwriting sections of the prospectus.
The Company hereby notifies the Staff that the Company’s shareholders have passed a new resolution on March 20, 2015, whereby shareholder approval of an initial public offering is conditioned on: (i) the minimum proceeds from the offering equals or exceeds US$40 million, (ii) at least 70% of the proceeds is attributable to new investors, (iii) the market value of the Company immediately prior to the offering based on the offering price (without giving effect to any shares issuable in connection with or as a result of the offering) equals or exceeds US$253 million, and (iv) that the offering must be completed prior to March 31, 2015.
The Company will duly reflect the amended conditions on the cover page, pages 50-51 in the risk factors section and page 192 in the underwriting section of Amendment 4. Please see Exhibit A for copies of these pages.
Risk Factors
Risks Related to Our Corporate Structure and Dependence on our Contractual Arrangements with our Affiliates
“If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply…,” page 33
4. We understand that the Chinese Ministry of Commerce recently released a draft Foreign Investment Law that may significantly change procedures for foreign investment in PRC companies. Please tell us what consideration you have given to revising your risk factor and regulations discussions, as necessary, to address the potential impact of the draft law.
The Company respectfully noted the comment and will make further disclosure on pages 35-36 of Amendment 4. Please see Exhibit A for copies of these pages.
Fair Value of Our Ordinary Shares and Share-Based Compensation, page 88
5. We have reviewed your response to prior comment 9 and have the following additional comments:
We respectfully advise the Staff that, as discussed in our previous responses, we used our best efforts and adopted appropriate valuation methodologies and assumptions in performing our valuations in April 2014 and June 2014. We considered the actual situation of our Company, the market environment and the information available to us as of those dates to determine the fair value of our Company’s enterprise and our ordinary shares as of those dates.
Nevertheless, we realize that despite our best efforts in conducting earlier valuations, there is indeed a significant difference between the offering price of our IPO, which was decided based on a direct interaction with the market, and the valuation results of our ordinary shares made in April 2014 and June 2014. While we are pleased to see that the market is receptive to our IPO and indicated a very positive price for our shares, we understand that there is a gap between the indicative offering price and the fair value of our ordinary shares determined back in April 2014 and June 2014, and this gap seems to be difficult to reconcile without revising the valuations made in April 2014 and June 2014.
We were well aware that the gap represented a substantial increase in the value of our ordinary shares as you correctly pointed out in your last round of comments. However, we would like to clarify one important point that you may be already aware of. Although the value of our ordinary shares did increase by 2,300%, the enterprise value of our Company increased only by 178%. This apparent discrepancy arose primarily from the fact that back in June 2014, the equity value of our Company was primarily allocated to the preferred shares, as compared with the upcoming IPO where the holders of the preferred shares agreed to convert their preferred shares into ordinary shares on a one-to-one basis. One of the major reasons that the fair value of our ordinary shares appeared so low has to do with our unique capital structure. (i) We raised funds through issuance of Series A-1, Series A-2 and Series B preferred shares in 2012 and earlier. The total amount of funds raised was around $67 million. These preferred shares are of a participating nature, in the sense that, upon a liquidation event, the preferred shareholders would get back their initial investment first (i.e. $67 million) and then share in the
remaining proceeds from liquidation on a pro-rata basis with the ordinary shareholders. Accordingly, under a liquidation scenario, our ordinary shares would have value only if the overall equity value of our Company exceeded $67 million.(ii) We owed $48 million dollars to our Chairman Mr. Xu as of June 2014. As a result, with the fair enterprise value of our Company valued at $115 million dollars, after deducting the debt and investment from preferred shareholders, the equity value left for our ordinary shares was close to zero, in a liquidation scenario. Once the fair enterprise value of our Company passes the $115 million threshold, the common equity value starts to rise. This analysis also explains why at the enterprise value of $115 million, which was the result of our original valuation as of June 2014, the conversion of preferred shares into ordinary shares would help increase the fair value of our ordinary shares dramatically, driving the common equity value increase from almost zero to $67 million..
As a result, we hope it is clear that the conversion of our preferred shares into ordinary shares would have a huge impact on the fair value of our ordinary shares, particularly when the enterprise value of our Company is close to the sum of debt plus preferred shareholders’ investment. Therefore, the probability of the conversion has a significant impact on the value and should be estimated carefully.
Thus, we have reassessed the fair value of our ordinary shares as of April and June 2014 in light of the changes in the following key assumptions: (i) to consider a probability of 50% that the preferred shares would be converted into ordinary shares upon an IPO (whether or not the IPO is a qualified one), (ii) a reduced discount rate of 23% used in DCF analysis to take into account certain positive expectation with respect to the business initiatives that were in planning or development phases then, and take into consideration that the Company started engaging an underwriter to prepare for an IPO in April 2014, and (iii) in order to maintain consistency to the extent possible between the guideline companies used in the preliminary IPO pricing in January 2015 and comparables used in valuation in June 2014, we decided to include Tuniu (only for the June 2014 valuation as Tuniu was only listed in May 2014) and Qunar (for both April and June 2014 valuation) in our list of comparable companies in determining the discount rate, stock price volatilities and revenue multiple comparison.
The specific reasons for making these adjustments will be discussed further below within the responses to each individual bullet point.
And the results of the re-valuations are the following:
(1) As of June 29, 2014, the fair value of the enterprise value of our Company was determined to be $156 mill
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CORRESP 1 filename1.htm RESIDENT PARTNERS: PEGGY P. Y. CHEUNG PHILLIP GEORGIOU JONES DAY 眾達國際法律事務所 SOLICITORS AND INTERNATIONAL LAWYERS 31ST FLOOR, EDINBURGH TOWER, THE LANDMARK 15 QUEEN’S ROAD CENTRAL, HONG KONG 香港皇后大道中十五號置地廣場公爵大廈三十一樓 ASHLEY HOWLETT JOELLE S. L. LAU ANITA P. F. LEUNG TELEPHONE: (852) 2526-6895 CHIANG LING LI FACSIMILE : (852) 2868-5871 GRAHAM LIM BENJAMIN MCQUHAE SCOTT D. PETERMAN CHRISTOPHER SWIFT MICHELLE TAYLOR ROBERT THOMSON REGISTERED FOREIGN LAWYERS: MICHAEL ARRUDA (California, USA) HAIFENG HUANG (New York, USA) CHRISTINE KIM (New York, USA) JULIAN LIN (California, USA) MARIA PEDERSEN (New York and District of Columbia, USA) NON-RESIDENT PARTNER: SEBASTIEN EVRARD March 26, 2015 Ms. Barbara C. Jacobs, Assistant Director Ms. Rebekah Lindsey Mr. Patrick Gilmore Mr. Matthew Crispino Division of Corporation Finance Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 U.S.A. Re: Wowo Limited Responses to Comment Letter Received on March 18, 2015 In connection with Registration Statement on Form F-1 File No. 333-201413 Dear Ms. Jacobs, Ms. Lindsey, Mr. Gilmore and Mr. Crispino: Wowo Limited (the “Company”) has requested us to respond to the Staff’s comments as set forth below. The numbered paragraphs below correspond to the numbered paragraphs in the Staff’s comment letter, which have been retyped herein in bold for your ease of reference. The page numbers in our comments refer to pages in the Registration Statement to be filed as Amendment No. 4, pages of which are attached hereto as Exhibit A. The Company notes that the discussions contained below may contain forward-looking statements that involve risks and uncertainties, including statements based on our current and past expectations, assumptions, estimates and projections. Our actual results could be materially different from such expectations, assumptions, estimates and projections. General 1. We note your response to prior comment 2. It appears that investors will be required to fund accounts with the underwriter or syndicate members prior to satisfaction of the offering contingency. In the absence of an escrow arrangement or separate bank account as outlined in Rule 15c2-4, this procedure appears to be inconsistent with the requirements of the rule. Please revise your offering. ALKHOBAR ·AMSTERDAM·ATLANTA ·BEIJING ·BOSTON ·BRUSSELS ·CHICAGO ·CLEVELAND ·COLUMBUS ·DALLAS DUBAI· DÜSSELDORF·FRANKFURT ·HONG KONG ·HOUSTON ·IRVINE ·JEDDAH ·LONDON ·LOS ANGELES MADRID ·MEXICO CITY ·MILAN ·MOSCOW ·MUNICH ·NEW YORK ·PARIS ·PITTSBURGH ·RIYADH ·SAN DIEGO SAN FRANCISCO ·SAO PAULO ·SHANGHAI ·SILICON VALLEY ·SINGAPORE ·SYDNEY ·TAIPEI ·TOKYO ·WASHINGTON The Company acknowledges the Staff’s comment and (with the assistance of the managing underwriter) has revised its offering in the Amendment 4 to reflect a firm commitment underwriting. As more fully described in our response to Comment 2 below, investors opening accounts with the underwriter or syndicate members are not required to fund such accounts prior to effectiveness of the Registration Statement. 2. We note that investors participating in the offering who do not have trading accounts with the managing underwriter or syndicate members will be required to set up such accounts. Please provide more details on the requirement to set up such trading accounts, including a discussion as to how the procedure complies with Section 5 of the Securities Act. Refer to Release No. 33-5071 and Question 139.26 of our Securities Act Compliance and Disclosure Interpretations. The Company acknowledges the Staff’s comment and (with the assistance of the managing underwriter) has revised its offering in Amendment 4 to reflect a firm commitment underwriting. Below the Company provides a summary detailing the requirements to set up trading accounts with the managing underwriter and syndicate members. Because these accounts are not required to be funded until immediately prior to closing of this public offering (after effectiveness of the registration statement) or prior to purchase of another publicly traded security, the Company believes this construct is in compliance with Section 5 of the Securities Act. · Leading up to pricing and closing, potential investors are approached to determine interest in participating in the offering. If a potential investor indicates an interest in participating in the offering, but does not have an existing account with the managing underwriter, the managing underwriter will initiate its new account opening process (the “New Account Process”), that is used by the managing underwriter and its clearing firm, National Financial Services LLC (“NFS”), to ensure that all newly opened accounts are done so in compliance with applicable SEC and FINRA rules and regulations including, investor suitability and anti-money laundering rules and regulations. This process is undertaken for the opening of all accounts with the managing underwriter. · The New Account Process includes completion of a “Brokerage Account Application” which elicits information necessary to (i) determine investor suitability for the offering; and (ii) investor compliance with applicable SEC and FINRA rules and regulations. · The New Account Process also includes completion of an IPO Certification Letter which is used by the managing underwriter to ensure compliance with NASD Rule 2790’s restriction on the purchase and sale of initial equity offerings. · The information contained in the Brokerage Account Application, which is also submitted to NFS, is used by the managing underwriter (and NFS) to perform due diligence and conduct background checks on the potential investors. Upon completion of the New Account Process and approval by the managing underwriter and NFS, the potential investor is then able to open a new account with the managing underwriter. Such account is: · non-discretionary and controlled solely by the potential investor. 2 · not required to be funded until immediately prior to making a trade. · If the potential investor wishes to participate in the offering, such potential investor will not be required to fund his account until after effectiveness of the Registration Statement, immediately prior to closing of the offering. The potential investor may wish to pre-fund the account in anticipation of effectiveness of the Registration Statement and pricing, but that is not required by the managing underwriter. · Following effectiveness of the Registration Statement and pricing, the managing underwriter will allocate the underwriting discount into the selling concession and management fee. In connection with the sale of securities, the total amount of securities to be sold in the offering are allocated (“ticketed”) by the managing underwriter and syndicate members among individual investors on the date immediately following pricing. With respect to the managing underwriter, order tickets are executed and confirmations are generated detailing offering price, securities purchased, amounts due within three (3) days, settlement date and the final prospectus is delivered. Each investor then wires the requisite purchase price out of such investor’s account (if prefunded) or funds the account in order to allow for the wire to the underwriter’s clearing firm, National Financial Services LLC (a registered clearing firm and DTC member (the “Clearing Firm”). · All sales of the Company’s securities will take place after effectiveness of the Registration Statement in compliance with Section 5 of the Securities Act. Prospectus Cover Page 3. We note the disclosure on pages 12 and 157 that the company will only effect this offering if the following four conditions are met: (1) the offering is conducted through a best efforts underwriting targeting US$60 million with minimum proceeds of US$40 million, (2) at least 70% of the proceeds in the offering are attributable to new investors, (3) the market value of the company immediately prior to the offering based on the offering price equals or exceeds US$253 million, and (4) the offering is completed prior to March 31, 2015. Please disclose all four conditions on the cover page and in the risk factors and underwriting sections of the prospectus. The Company hereby notifies the Staff that the Company’s shareholders have passed a new resolution on March 20, 2015, whereby shareholder approval of an initial public offering is conditioned on: (i) the minimum proceeds from the offering equals or exceeds US$40 million, (ii) at least 70% of the proceeds is attributable to new investors, (iii) the market value of the Company immediately prior to the offering based on the offering price (without giving effect to any shares issuable in connection with or as a result of the offering) equals or exceeds US$253 million, and (iv) that the offering must be completed prior to March 31, 2015. The Company will duly reflect the amended conditions on the cover page, pages 50-51 in the risk factors section and page 192 in the underwriting section of Amendment 4. Please see Exhibit A for copies of these pages. 3 Risk Factors Risks Related to Our Corporate Structure and Dependence on our Contractual Arrangements with our Affiliates “If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply…,” page 33 4. We understand that the Chinese Ministry of Commerce recently released a draft Foreign Investment Law that may significantly change procedures for foreign investment in PRC companies. Please tell us what consideration you have given to revising your risk factor and regulations discussions, as necessary, to address the potential impact of the draft law. The Company respectfully noted the comment and will make further disclosure on pages 35-36 of Amendment 4. Please see Exhibit A for copies of these pages. Fair Value of Our Ordinary Shares and Share-Based Compensation, page 88 5. We have reviewed your response to prior comment 9 and have the following additional comments: We respectfully advise the Staff that, as discussed in our previous responses, we used our best efforts and adopted appropriate valuation methodologies and assumptions in performing our valuations in April 2014 and June 2014. We considered the actual situation of our Company, the market environment and the information available to us as of those dates to determine the fair value of our Company’s enterprise and our ordinary shares as of those dates. Nevertheless, we realize that despite our best efforts in conducting earlier valuations, there is indeed a significant difference between the offering price of our IPO, which was decided based on a direct interaction with the market, and the valuation results of our ordinary shares made in April 2014 and June 2014. While we are pleased to see that the market is receptive to our IPO and indicated a very positive price for our shares, we understand that there is a gap between the indicative offering price and the fair value of our ordinary shares determined back in April 2014 and June 2014, and this gap seems to be difficult to reconcile without revising the valuations made in April 2014 and June 2014. We were well aware that the gap represented a substantial increase in the value of our ordinary shares as you correctly pointed out in your last round of comments. However, we would like to clarify one important point that you may be already aware of. Although the value of our ordinary shares did increase by 2,300%, the enterprise value of our Company increased only by 178%. This apparent discrepancy arose primarily from the fact that back in June 2014, the equity value of our Company was primarily allocated to the preferred shares, as compared with the upcoming IPO where the holders of the preferred shares agreed to convert their preferred shares into ordinary shares on a one-to-one basis. One of the major reasons that the fair value of our ordinary shares appeared so low has to do with our unique capital structure. (i) We raised funds through issuance of Series A-1, Series A-2 and Series B preferred shares in 2012 and earlier. The total amount of funds raised was around $67 million. These preferred shares are of a participating nature, in the sense that, upon a liquidation event, the preferred shareholders would get back their initial investment first (i.e. $67 million) and then share in the 4 remaining proceeds from liquidation on a pro-rata basis with the ordinary shareholders. Accordingly, under a liquidation scenario, our ordinary shares would have value only if the overall equity value of our Company exceeded $67 million.(ii) We owed $48 million dollars to our Chairman Mr. Xu as of June 2014. As a result, with the fair enterprise value of our Company valued at $115 million dollars, after deducting the debt and investment from preferred shareholders, the equity value left for our ordinary shares was close to zero, in a liquidation scenario. Once the fair enterprise value of our Company passes the $115 million threshold, the common equity value starts to rise. This analysis also explains why at the enterprise value of $115 million, which was the result of our original valuation as of June 2014, the conversion of preferred shares into ordinary shares would help increase the fair value of our ordinary shares dramatically, driving the common equity value increase from almost zero to $67 million.. As a result, we hope it is clear that the conversion of our preferred shares into ordinary shares would have a huge impact on the fair value of our ordinary shares, particularly when the enterprise value of our Company is close to the sum of debt plus preferred shareholders’ investment. Therefore, the probability of the conversion has a significant impact on the value and should be estimated carefully. Thus, we have reassessed the fair value of our ordinary shares as of April and June 2014 in light of the changes in the following key assumptions: (i) to consider a probability of 50% that the preferred shares would be converted into ordinary shares upon an IPO (whether or not the IPO is a qualified one), (ii) a reduced discount rate of 23% used in DCF analysis to take into account certain positive expectation with respect to the business initiatives that were in planning or development phases then, and take into consideration that the Company started engaging an underwriter to prepare for an IPO in April 2014, and (iii) in order to maintain consistency to the extent possible between the guideline companies used in the preliminary IPO pricing in January 2015 and comparables used in valuation in June 2014, we decided to include Tuniu (only for the June 2014 valuation as Tuniu was only listed in May 2014) and Qunar (for both April and June 2014 valuation) in our list of comparable companies in determining the discount rate, stock price volatilities and revenue multiple comparison. The specific reasons for making these adjustments will be discussed further below within the responses to each individual bullet point. And the results of the re-valuations are the following: (1) As of June 29, 2014, the fair value of the enterprise value of our Company was determined to be $156 mill