WEBVTT 1 00:00:01.095 --> 00:00:04.405 Hello and welcome to this Vidcast which will focus on a 2 00:00:04.435 --> 00:00:06.645 very prominent field right now. 3 00:00:07.195 --> 00:00:11.525 Data centers, more specifically those dedicated to training 4 00:00:12.385 --> 00:00:14.325 AI generated LLMs. 5 00:00:14.705 --> 00:00:17.125 The companies that best symbolizes this business 6 00:00:17.505 --> 00:00:21.205 and is currently the center of attention is core wave. 7 00:00:23.475 --> 00:00:25.415 The story starts in 2017. 8 00:00:25.865 --> 00:00:28.575 Three traders and a computer scientist. 9 00:00:28.765 --> 00:00:33.095 Experts are going to create a company around mining 10 00:00:33.235 --> 00:00:36.015 for cryptocurrencies, especially Ethereum. 11 00:00:36.555 --> 00:00:38.735 But in 2018, a year later, 12 00:00:38.735 --> 00:00:41.815 there will be a big crash in the cryptocurrencies business. 13 00:00:42.045 --> 00:00:45.495 Bitcoin value is going to go down by 80%. 14 00:00:46.125 --> 00:00:48.775 Then you have to experience a strategic shift, 15 00:00:49.315 --> 00:00:50.975 and in 2019 they are going 16 00:00:50.975 --> 00:00:54.335 to repurpose the capacity in cloud infrastructures. 17 00:00:54.335 --> 00:00:56.695 IT change the name, it becomes core wave 18 00:00:57.435 --> 00:01:00.415 and it's about computing, not just data storage, 19 00:01:00.725 --> 00:01:04.175 it's about high performance computing for ai. 20 00:01:06.645 --> 00:01:10.025 Now, even though there are some similarities between HPC 21 00:01:10.085 --> 00:01:13.625 and hyperscale, there are quite significant differences. 22 00:01:14.545 --> 00:01:16.385 Hyperscalers are very well known. 23 00:01:16.385 --> 00:01:19.665 Cloud suppliers, Amazon Web Services, Microsoft, 24 00:01:19.795 --> 00:01:21.225 Azure, and Google. 25 00:01:22.265 --> 00:01:26.465 HPC is very much about processing, not simply data storage 26 00:01:27.195 --> 00:01:29.385 processing for training AI model. 27 00:01:29.445 --> 00:01:32.185 So it's a kind of capacity as a service model, 28 00:01:32.485 --> 00:01:36.625 you run your capacity to these guys who need the capacity 29 00:01:37.085 --> 00:01:39.185 and the computing in order to train the models. 30 00:01:39.735 --> 00:01:41.985 It's about dedicated data centers. 31 00:01:42.495 --> 00:01:44.665 Very big difference in terms of capacity, 32 00:01:45.125 --> 00:01:47.625 energy consumption, safety needs. 33 00:01:48.125 --> 00:01:49.665 Now they can be independent 34 00:01:50.005 --> 00:01:54.385 or owned in core wave owned by Amazon, 35 00:01:55.065 --> 00:01:57.945 Microsoft, et cetera, the big hyper skaters 36 00:01:59.955 --> 00:02:01.575 In order to understand what it means. 37 00:02:01.935 --> 00:02:04.895 HPC, let's have a look at the project matrix 38 00:02:05.035 --> 00:02:09.815 of a traditional data center cluster AI unit processes 39 00:02:09.885 --> 00:02:14.135 from Nvidia H 100, for example, 14,000 GPUs, 40 00:02:14.835 --> 00:02:16.695 but you need plenty of energy, 41 00:02:17.495 --> 00:02:20.135 electricity capacity, 18 megawatts. 42 00:02:20.685 --> 00:02:22.895 What does it mean in terms of capacity? 43 00:02:22.895 --> 00:02:26.295 If you take a city electrical capacity with 18 megawatts, 44 00:02:26.295 --> 00:02:29.775 it's okay for 10,000 to 15,000 inhabitants, 45 00:02:30.555 --> 00:02:33.935 but the city does not use a full capacity full time. 46 00:02:34.755 --> 00:02:38.055 As far as HPC is concerned, the conception is much higher 47 00:02:38.055 --> 00:02:42.135 because it's 24 7, full speed, full capacity 48 00:02:42.805 --> 00:02:46.215 capital expenditure is about a billion from 900 million 49 00:02:46.235 --> 00:02:50.735 to 1.2 billion in the figure, you have 400 million 50 00:02:50.755 --> 00:02:52.335 for the GPUs for example, 51 00:02:52.755 --> 00:02:56.495 and 250 million for the 18 megawatt capacity. 52 00:02:57.195 --> 00:03:00.845 The problem is a rapid obsolescence in terms of technology. 53 00:03:01.465 --> 00:03:04.765 In three to four years your processes are outdated, 54 00:03:05.255 --> 00:03:08.365 which means that there is a very high operating risks, 55 00:03:08.705 --> 00:03:11.365 plenty of CapEx and short life. 56 00:03:11.915 --> 00:03:14.525 Then the only way to run the business is take over pace. 57 00:03:14.525 --> 00:03:17.125 There will be a client which makes a commitment 58 00:03:17.125 --> 00:03:20.565 of using say 80% of the theoretical capacity 59 00:03:20.565 --> 00:03:22.165 during 3, 4, 5 years. 60 00:03:22.955 --> 00:03:27.085 Then you take a dedicated SPV to welcome the data center. 61 00:03:27.505 --> 00:03:30.285 You have a customer and as you have some visibility, 62 00:03:30.585 --> 00:03:33.965 you can put plenty of debt with a return capital 63 00:03:34.385 --> 00:03:37.565 and the leverage the shareholder internal rate 64 00:03:37.565 --> 00:03:41.565 of return might reach about 20%, which is okay, 65 00:03:41.825 --> 00:03:43.245 but the risk is very high. 66 00:03:45.265 --> 00:03:48.095 Let's deep dive a little bit in the financial metrics. 67 00:03:48.875 --> 00:03:52.495 Our repeat capital expenditures, 900 million to 1.2 billion 68 00:03:53.055 --> 00:03:56.575 revenues only quote $300 million, 69 00:03:57.235 --> 00:03:59.495 so it's about 30% of the CapEx. 70 00:03:59.675 --> 00:04:02.575 The assets turnover is very low, which is a consequence 71 00:04:02.575 --> 00:04:04.455 of a very high capital intensity. 72 00:04:05.325 --> 00:04:07.375 Then if the assets turnover is very low 73 00:04:07.375 --> 00:04:09.655 and you want to generate a decent return on capital, 74 00:04:09.915 --> 00:04:12.095 you need to generate a high return on sales. 75 00:04:12.925 --> 00:04:16.055 Operating expenses account for about 80 million. 76 00:04:16.635 --> 00:04:17.975 Out of 300 million 77 00:04:17.995 --> 00:04:21.975 of revenues though they bid die 220 million, 78 00:04:22.305 --> 00:04:25.495 which is quite okay, but during three years 79 00:04:26.235 --> 00:04:28.695 and maybe you are going to keep on running the business, 80 00:04:28.715 --> 00:04:30.495 you're four, five to six, 81 00:04:30.875 --> 00:04:33.535 but you understand that for example, four years 82 00:04:33.675 --> 00:04:37.015 of 220 million is just a CapEx. 83 00:04:37.515 --> 00:04:40.455 So you break even on a cash point of view in four years 84 00:04:40.915 --> 00:04:44.575 and you make your bread and butter your INPV in year 85 00:04:44.725 --> 00:04:45.815 five to six. 86 00:04:46.005 --> 00:04:47.415 It's extremely risky. 87 00:04:48.275 --> 00:04:52.215 The bank is are providing 800 million, 80% 88 00:04:52.395 --> 00:04:54.655 of the financing, but why? 89 00:04:54.655 --> 00:04:55.775 Because of the take 90 00:04:55.835 --> 00:04:58.695 or pay, then you create a special purpose vehicle 91 00:04:59.315 --> 00:05:02.175 and financing belongs to a very specific field, 92 00:05:02.175 --> 00:05:03.575 which is project finance, 93 00:05:03.955 --> 00:05:06.415 not very traditional corporate finance. 94 00:05:08.665 --> 00:05:11.255 Where does core wave stands today? 95 00:05:11.995 --> 00:05:13.535 The technical status is 96 00:05:13.815 --> 00:05:16.295 provided by some information, the IPO, 97 00:05:16.295 --> 00:05:18.375 which took place in March, 2025, 98 00:05:18.835 --> 00:05:22.495 and we have the update October with Q3 2025. 99 00:05:23.195 --> 00:05:27.215 It seems that the company at that time owns 41 data centers. 100 00:05:27.425 --> 00:05:31.735 There are 100% dedicated to AI training. 101 00:05:32.405 --> 00:05:35.655 LLMs more than 250,000 102 00:05:36.165 --> 00:05:37.895 GPUs coming from nvidia. 103 00:05:38.635 --> 00:05:42.575 The traditional history called H 100 and the new Blackwell. 104 00:05:43.235 --> 00:05:46.775 So there is a very high supplier dependency 105 00:05:47.125 --> 00:05:50.655 because they buy the GPUs from Nvidia, 100% of them, 106 00:05:50.875 --> 00:05:52.335 but there is a kind of privilege 107 00:05:52.515 --> 00:05:56.055 and highly communicated relationship with Nvidia, 108 00:05:56.515 --> 00:05:58.765 so there's also a client's dependency. 109 00:05:58.905 --> 00:06:01.365 Not many companies are going to buy a service, 110 00:06:02.265 --> 00:06:04.525 OpenAI obviously Microsoft, 111 00:06:05.065 --> 00:06:08.845 but there are some other dependencies, a dependence on debt 112 00:06:09.685 --> 00:06:11.045 floating or fixed rate, 113 00:06:11.425 --> 00:06:14.805 and there is a dependence on energy costs which are quite 114 00:06:14.805 --> 00:06:16.565 difficult to forecast those days. 115 00:06:18.705 --> 00:06:20.885 Now this we have the financial metrics of a project. 116 00:06:21.055 --> 00:06:22.685 Let's have a look at the financial metrics 117 00:06:22.865 --> 00:06:25.165 of the company core wave as it is. 118 00:06:27.475 --> 00:06:29.505 First, let's have a look at the revenues. 119 00:06:30.125 --> 00:06:32.825 The growth is absolutely unbelievable. 120 00:06:33.425 --> 00:06:37.425 Revenues are growing by $200 million each and every quarter. 121 00:06:38.305 --> 00:06:41.025 A few quarters ago the revenues were 200 million 122 00:06:41.325 --> 00:06:44.745 to their eighties, 1.4 billion per quarter 123 00:06:45.525 --> 00:06:48.105 and it is absolutely mechanical increase, 124 00:06:48.105 --> 00:06:49.425 which is unbelievable. 125 00:06:49.715 --> 00:06:54.665 Again, what about the future as far as growth is concerned, 126 00:06:55.205 --> 00:06:57.425 the company is communicating on its backlog. 127 00:06:58.205 --> 00:07:01.505 The backlog Q3 24 was 15 billion. 128 00:07:02.125 --> 00:07:06.465 The backlog Q3 25 is more than 55 billion 129 00:07:07.085 --> 00:07:09.865 out of which 40% for the next 24 months 130 00:07:09.865 --> 00:07:14.745 for the next two years, if you take 40% of 55 billion, 131 00:07:14.845 --> 00:07:18.345 you divide by eight quarters in two years it's about 132 00:07:18.445 --> 00:07:22.705 $2.8 billion per quarter, so it is twice as much 133 00:07:22.765 --> 00:07:24.345 as a current ebit. 134 00:07:24.845 --> 00:07:26.705 So you understand that the perspectives in terms 135 00:07:26.705 --> 00:07:29.865 of revenue growth are absolutely huge. 136 00:07:32.085 --> 00:07:33.905 You could expect that the company is going 137 00:07:33.905 --> 00:07:36.065 to generate significant economies of scale 138 00:07:36.215 --> 00:07:39.465 with such a high growth rate and it's not the case. 139 00:07:40.125 --> 00:07:43.625 If you look at the operating expenses, the main one, 140 00:07:43.685 --> 00:07:45.585 the big figure is technology. 141 00:07:45.935 --> 00:07:49.465 It's about 50%, it was 50% 142 00:07:49.725 --> 00:07:52.425 and it's still 50% cost of sales. 143 00:07:52.755 --> 00:07:55.585 There were some economies of scale a few quarters ago, 144 00:07:55.585 --> 00:07:57.705 but now it's quite stable general 145 00:07:57.845 --> 00:07:59.145 and that mean quite stable. 146 00:07:59.355 --> 00:08:02.345 Sales and marketing absolutely negligible 147 00:08:02.645 --> 00:08:05.385 and growing a little bit as a percentage to revenues, 148 00:08:05.725 --> 00:08:07.225 so you generate economies 149 00:08:07.345 --> 00:08:09.425 of scale when fixed costs are fixed, 150 00:08:09.605 --> 00:08:12.545 but it seems that costs are quite variable. 151 00:08:14.215 --> 00:08:17.345 When you observe operating expenses which are quite stable 152 00:08:17.435 --> 00:08:20.025 percentage of revenues, you would anticipate 153 00:08:20.025 --> 00:08:23.305 that the EBIT itself, which is revenues minus of x, 154 00:08:23.685 --> 00:08:25.305 is a quite stable percentage 155 00:08:25.325 --> 00:08:27.185 to revenues and it's not the case. 156 00:08:27.765 --> 00:08:30.785 It was about 15% up to three quarters ago 157 00:08:30.965 --> 00:08:32.265 and then it dramatically 158 00:08:32.325 --> 00:08:36.225 and abruptly went down positive to negative, 159 00:08:36.905 --> 00:08:39.225 a little bit negative and then it's a little bit up 160 00:08:39.285 --> 00:08:42.985 but not 15 C, about three, 4%. 161 00:08:43.845 --> 00:08:45.305 Now, how do you explain that? 162 00:08:45.965 --> 00:08:47.945 As a matter of fact, the operating expenses, 163 00:08:47.945 --> 00:08:52.545 which I showed you are excluding stock based compensation 164 00:08:52.965 --> 00:08:55.565 and what happened is that stock based compensation 165 00:08:56.085 --> 00:08:58.285 dramatically increased during the first quarter 166 00:08:58.705 --> 00:09:00.285 for a very simple reason. 167 00:09:00.625 --> 00:09:04.855 The IPO, You should look at the evolution 168 00:09:04.855 --> 00:09:06.215 of stock-based compensation. 169 00:09:06.315 --> 00:09:10.455 The last quarters, it was absolutely negligible up to end 170 00:09:10.455 --> 00:09:13.775 of 2024, a few millions per quarter, 171 00:09:14.645 --> 00:09:19.255 less than 5% a few quarters ago are now down to 2%, 172 00:09:19.875 --> 00:09:23.455 and then because of the IPO, the cap distributed penny off 173 00:09:24.135 --> 00:09:26.535 restricted stock units, stock options and so on 174 00:09:26.535 --> 00:09:30.415 and so forth, and it amounted to 180 million just 175 00:09:30.415 --> 00:09:34.815 during the first quarter, which is about 18% 176 00:09:34.915 --> 00:09:37.415 of the revenues of the company at that time. 177 00:09:38.085 --> 00:09:39.175 Then it went down, 178 00:09:39.235 --> 00:09:41.655 but you understand that it explains the difference between 179 00:09:42.275 --> 00:09:45.335 the opex without stock-based compensation 180 00:09:45.475 --> 00:09:50.135 and the published opex difference between the adjusted EBIT 181 00:09:50.475 --> 00:09:52.495 and the actual published ebit 182 00:09:54.545 --> 00:09:59.145 adjusted unpublished EBIT were quite the same up to end 183 00:09:59.245 --> 00:10:00.465 of 2024, 184 00:10:01.365 --> 00:10:05.825 and then the adjusted EBIT stabilized to the level of 15%, 185 00:10:05.825 --> 00:10:08.025 which is a consequence of the figures, 186 00:10:08.025 --> 00:10:10.065 which I gave you a few minutes ago, 187 00:10:10.725 --> 00:10:14.465 and then the act four published EBIT went down dramatically. 188 00:10:15.085 --> 00:10:17.665 As I said, the difference is simply the stock 189 00:10:17.665 --> 00:10:18.705 based compensation. 190 00:10:21.505 --> 00:10:24.525 Now let's keep these adjusted figures adjusted from stock 191 00:10:24.525 --> 00:10:25.525 based compensation. 192 00:10:26.425 --> 00:10:28.325 The difference between adjusted EBIT 193 00:10:28.585 --> 00:10:30.365 and adjusted EBITDA is 194 00:10:30.365 --> 00:10:32.285 of course depreciation and monetization. 195 00:10:32.785 --> 00:10:35.445 The company is investing a lot in capital expenditures, 196 00:10:35.865 --> 00:10:38.965 but the COMPANIE is also investing a lot in research 197 00:10:39.025 --> 00:10:40.845 and development capitalized r 198 00:10:40.845 --> 00:10:43.005 and d expenses, one is depreciated, 199 00:10:43.225 --> 00:10:44.525 the other one is amortized. 200 00:10:45.305 --> 00:10:49.525 The EBITDA adjusted is about 60% of revenues 201 00:10:50.265 --> 00:10:52.965 and the EBIT adjusted is about 15. 202 00:10:53.225 --> 00:10:54.805 The difference is investment. 203 00:10:55.015 --> 00:10:58.245 These companies extremely capital intensive, 204 00:11:00.655 --> 00:11:03.715 But then the question is capital intensity, yes, 205 00:11:04.295 --> 00:11:05.795 as a percentage to revenues, 206 00:11:06.095 --> 00:11:08.355 how do you compare CapEx and revenues? 207 00:11:09.215 --> 00:11:11.595 If you look at the recent quarters, you understand 208 00:11:11.595 --> 00:11:15.715 that capital expenditure is about two years of revenues, 209 00:11:15.715 --> 00:11:17.715 which is absolutely dramatic, 210 00:11:18.415 --> 00:11:20.835 but you generate a high bid DA easy A bid, 211 00:11:20.955 --> 00:11:24.395 DA high enough in order to finance the capital expenditures 212 00:11:24.735 --> 00:11:26.995 and the answer is absolutely no. 213 00:11:27.305 --> 00:11:30.795 Even though the EBIT D is very much up in absolute terms 214 00:11:30.975 --> 00:11:33.475 as a consequence of growth in revenues, 215 00:11:33.975 --> 00:11:37.995 the E-P-D-H-S finances one third 35% 216 00:11:37.995 --> 00:11:40.755 of the capital expenditures, so you understand 217 00:11:40.755 --> 00:11:44.155 that growth is consuming financial resources, 218 00:11:44.875 --> 00:11:49.035 internal financial resources, about 35 of the CapEx. 219 00:11:49.335 --> 00:11:51.635 Now you need to find 65 somewhere else 220 00:11:53.905 --> 00:11:56.965 before we explore the way the company's financing is gross 221 00:11:56.985 --> 00:11:58.285 and capital expenditures. 222 00:11:58.875 --> 00:12:03.445 It's interesting to make a very quick stop at Q3 223 00:12:04.005 --> 00:12:07.525 communication, Q2 communication full. 224 00:12:07.525 --> 00:12:11.005 Your guidance for 2025 is five to 225 00:12:11.595 --> 00:12:14.325 five point 35 billion of revenues. 226 00:12:15.125 --> 00:12:18.725 Revenues are a little bit lower in the guidance which is 227 00:12:18.925 --> 00:12:20.485 provided in Q3 25. 228 00:12:21.345 --> 00:12:24.965 Of course, when revenues are down as costs are variable, 229 00:12:25.355 --> 00:12:27.805 well basically the adjusted operating income is going 230 00:12:27.805 --> 00:12:29.125 to be a little bit down. 231 00:12:30.565 --> 00:12:32.645 Interest expense is quite significant 232 00:12:32.645 --> 00:12:34.965 because there is a lot of debt and interest expense 233 00:12:35.425 --> 00:12:37.765 and interest rates are not negligible. 234 00:12:38.225 --> 00:12:39.885 But what is very interesting is 235 00:12:39.885 --> 00:12:42.525 to observe the guidance in terms of capital expenditures. 236 00:12:43.185 --> 00:12:46.725 The company was announcing during the first quarter of 2025 237 00:12:46.725 --> 00:12:49.365 that CapEx would be 20 to 23 billion 238 00:12:50.025 --> 00:12:52.405 and the guidance is reduced to 12 239 00:12:52.505 --> 00:12:54.925 to 14 billion just a quarter later. 240 00:12:55.545 --> 00:12:58.845 That's quite a surprise in terms of capacity investment. 241 00:13:01.455 --> 00:13:02.755 You remember that when you want 242 00:13:02.755 --> 00:13:05.795 to find on the non-car assets of a company, 243 00:13:06.255 --> 00:13:09.155 you can mobilize data and equity, but 244 00:13:09.155 --> 00:13:12.395 before that you can also mobilize your own operating cycle, 245 00:13:12.405 --> 00:13:14.355 which is a working capital requirement. 246 00:13:14.615 --> 00:13:16.235 Of course, when it is negative, 247 00:13:17.065 --> 00:13:19.195 when you look at the working capital requirement 248 00:13:19.195 --> 00:13:22.515 of core wave, it's operating current assets minus operating 249 00:13:22.515 --> 00:13:26.595 current liabilities and it's negative by 2.1 billion. 250 00:13:27.495 --> 00:13:31.915 The current liabilities operating are exceeding the current 251 00:13:32.015 --> 00:13:34.395 assets operating by 2.1 billion, 252 00:13:34.495 --> 00:13:37.715 so it's a resource which comes from the operating cycle, 253 00:13:38.335 --> 00:13:39.755 but that's not the end of the story 254 00:13:39.905 --> 00:13:44.675 because as the clients are paying in advance short term 255 00:13:44.815 --> 00:13:48.235 and long term, there's a deferred revenue which is more than 256 00:13:48.265 --> 00:13:50.715 $5 billion in the balance sheet of the company. 257 00:13:51.255 --> 00:13:54.715 So the operating resources are coming from the operating 258 00:13:54.715 --> 00:13:56.395 cycle are the combination 259 00:13:56.455 --> 00:13:59.035 of a negative working capital requirement 260 00:13:59.545 --> 00:14:02.355 without the deferred revenue 2.1 billion 261 00:14:02.815 --> 00:14:06.755 and the deferred revenue 5.4, so it's a total 262 00:14:06.855 --> 00:14:10.035 of 7.5 billion, which is extremely significant. 263 00:14:10.865 --> 00:14:13.435 It's not enough, but it's quite a lot of money. 264 00:14:15.805 --> 00:14:18.505 Of course, 7.5 billion is a very high figure, 265 00:14:18.525 --> 00:14:21.145 but it's far from being enough to finance the growth 266 00:14:21.165 --> 00:14:22.985 and the capital expenditures of the company. 267 00:14:23.695 --> 00:14:27.825 What comes from capital markets is 22.3 billion out 268 00:14:27.825 --> 00:14:32.505 of which most of it is debt, 19.5, Q3, 2025, 269 00:14:33.405 --> 00:14:37.385 and only in 2025 the company raised almost $9 billion 270 00:14:37.385 --> 00:14:41.145 of debt, so it's a very important actor on the bond market. 271 00:14:41.965 --> 00:14:45.985 The rest is about equity, but equity is 2.8. 272 00:14:46.135 --> 00:14:49.025 It's not exactly 2.8 issues. 273 00:14:49.125 --> 00:14:51.685 Equity shares issues about 1.5 billion 274 00:14:51.785 --> 00:14:54.485 and the rest is about secondary offerings, 275 00:14:54.825 --> 00:14:57.405 but secondary offerings is not cash for the cab. 276 00:14:58.185 --> 00:15:02.005 It sells from shareholders to shareholders, 277 00:15:02.305 --> 00:15:05.245 and so the shareholders are cashing in 1.3 billion. 278 00:15:05.535 --> 00:15:08.565 Those who sell their shares but not the cab itself. 279 00:15:09.145 --> 00:15:11.605 So cash for the company is 1.5 billion 280 00:15:12.265 --> 00:15:14.485 two series are absolutely significant. 281 00:15:14.785 --> 00:15:19.485 Series B, a first tranche of 200 and a second of 200 282 00:15:19.945 --> 00:15:23.245 and series C, which is very big with 1.1 billion. 283 00:15:23.965 --> 00:15:28.245 A very important investor is both in debt and equity. 284 00:15:29.055 --> 00:15:32.805 Manar and Manar holds more than 20% 285 00:15:32.825 --> 00:15:36.965 of the shares when the company is listed in March, 2025. 286 00:15:39.505 --> 00:15:42.215 Manar is a very well known actor operating in the industry 287 00:15:42.215 --> 00:15:45.535 of structured finance there were quite involved in the 288 00:15:45.695 --> 00:15:46.855 subprime business. 289 00:15:47.525 --> 00:15:50.335 They're also involved in arbitrary strategies 290 00:15:50.335 --> 00:15:53.775 and they started investing in venture capital in 2024. 291 00:15:54.645 --> 00:15:56.455 When you're involved in the subprime business, 292 00:15:56.555 --> 00:15:58.655 do you survive to the subprime crisis? 293 00:15:59.035 --> 00:16:03.055 The answer is yes. They were very much a structuring, CDOs, 294 00:16:03.205 --> 00:16:06.175 investments, et cetera, but they are quite ous people 295 00:16:06.675 --> 00:16:08.735 and they understood that there was something 296 00:16:08.735 --> 00:16:09.815 which was going to happen. 297 00:16:09.925 --> 00:16:13.055 This is why they hedge very much their position with credit, 298 00:16:13.305 --> 00:16:16.255 their fois, the CDS, and then they survived. 299 00:16:17.035 --> 00:16:20.015 Now they participated to series B and C 300 00:16:20.075 --> 00:16:22.495 and sometimes as the leader for call wave 301 00:16:23.075 --> 00:16:24.975 and they participated to the issue 302 00:16:24.975 --> 00:16:27.735 of the convertible bond issued by coal wave. 303 00:16:28.155 --> 00:16:31.375 Now the company has more than 20% of these shares. 304 00:16:31.915 --> 00:16:36.055 The value of their equity holding is $8 billion 305 00:16:36.125 --> 00:16:38.175 with a current stock price of coal wave, 306 00:16:38.175 --> 00:16:40.695 which is a very significant multiple. 307 00:16:42.975 --> 00:16:45.385 When you are extremely active on a debt 308 00:16:45.445 --> 00:16:48.665 and bond market, the question is which risk premium are you 309 00:16:48.665 --> 00:16:51.185 going to pay as a consequence of the property 310 00:16:51.185 --> 00:16:52.305 of default of your debt? 311 00:16:52.415 --> 00:16:55.225 What is your rating? There are two approaches. 312 00:16:55.555 --> 00:16:57.785 First, your ability with your cash flows 313 00:16:57.785 --> 00:16:58.905 to repair your debt. 314 00:16:58.975 --> 00:17:01.785 Cash flow is about ebitda, cash upbringing, profit, 315 00:17:02.605 --> 00:17:04.745 and so if you divide net debt by a bid, 316 00:17:04.925 --> 00:17:06.345 you get the financial leverage. 317 00:17:06.445 --> 00:17:09.665 How many years does it take in order to repair the debt? 318 00:17:10.445 --> 00:17:12.505 The second one is well, 319 00:17:12.505 --> 00:17:14.985 debt is financing your business operations, 320 00:17:15.465 --> 00:17:17.945 business operations, capital employed, capital employed 321 00:17:17.965 --> 00:17:20.545 as a value which is named enterprise value. 322 00:17:21.365 --> 00:17:23.785 Is the enterprise value high enough, 323 00:17:24.015 --> 00:17:27.265 significantly greater than your indebtedness? 324 00:17:27.485 --> 00:17:29.145 If it is the case, then 325 00:17:29.145 --> 00:17:32.305 with your enterprise value you can repair the debt. 326 00:17:32.525 --> 00:17:33.785 That's a financial structure 327 00:17:33.895 --> 00:17:37.025 that the gearing debt divided by equity. 328 00:17:39.375 --> 00:17:41.285 Let's start with the financial leverage. 329 00:17:41.595 --> 00:17:44.845 Financial leverage is net divided by EBDA, 330 00:17:44.845 --> 00:17:46.205 the cash operating profit. 331 00:17:47.185 --> 00:17:49.085 Now the question is debt. 332 00:17:49.345 --> 00:17:51.525 Of course it's the one we chose in your balance sheet, 333 00:17:51.825 --> 00:17:53.885 but what about EBDA? 334 00:17:54.305 --> 00:17:57.365 Do you take the current one? Do you take the historical one? 335 00:17:57.365 --> 00:17:58.605 Do you take the future one? 336 00:17:59.105 --> 00:18:02.365 The future will be certainly much more than the current one, 337 00:18:02.745 --> 00:18:05.405 but if you take the past, you take the last 12 months 338 00:18:05.425 --> 00:18:08.085 for example, you get six years of a bid DA, 339 00:18:08.665 --> 00:18:10.525 but it's not a very relevant figure 340 00:18:10.525 --> 00:18:13.365 because you remember the current revenue is 341 00:18:13.365 --> 00:18:14.485 about 1.4 billion. 342 00:18:15.145 --> 00:18:18.045 The average revenue for the next quarters 343 00:18:18.045 --> 00:18:21.045 for the next two years going to be 2.8 twice as much. 344 00:18:21.705 --> 00:18:23.765 Now, if you take the current bid DA, 345 00:18:23.765 --> 00:18:26.525 which is a bit more relevant than the last four quarters, 346 00:18:26.905 --> 00:18:28.045 you get five years, 347 00:18:28.705 --> 00:18:32.205 but basically even though the figure is a bit higher today 348 00:18:32.315 --> 00:18:36.205 than what it was a few quarters ago, it's not very high 349 00:18:36.675 --> 00:18:38.725 because the growth is there. 350 00:18:40.255 --> 00:18:42.315 Second perspective, the financial structure, 351 00:18:42.855 --> 00:18:45.715 the gearing debt divided by equity, 352 00:18:46.575 --> 00:18:49.155 the gearing dramatically went down when the company 353 00:18:49.775 --> 00:18:53.155 issued shares one public, the initial public offering. 354 00:18:53.695 --> 00:18:56.595 I'm going to explain you that in a few minutes though. 355 00:18:56.655 --> 00:18:59.395 You repair your debt with the equity which is raised 356 00:18:59.395 --> 00:19:03.275 and the gearing naturally goes down, it goes down to two, 357 00:19:03.695 --> 00:19:07.115 and then it is up a few quarters later to four 358 00:19:07.705 --> 00:19:10.195 that the gearing is up exactly the same 359 00:19:10.215 --> 00:19:11.875 as the financial leverage is up, 360 00:19:12.535 --> 00:19:14.755 but the gearing is that divided by equity. 361 00:19:14.765 --> 00:19:16.195 Which equity do you take? 362 00:19:16.195 --> 00:19:17.555 Do you take the one which is in the books 363 00:19:17.815 --> 00:19:19.555 or do you take the value of equity? 364 00:19:20.495 --> 00:19:23.115 And then what is very interesting is to understand 365 00:19:23.115 --> 00:19:26.555 that the value of equity is much more than the book value. 366 00:19:26.935 --> 00:19:30.435 The price to book is 18, which means that $1 367 00:19:30.495 --> 00:19:34.075 of book equity is evaluated $18 by the market. 368 00:19:34.745 --> 00:19:36.555 Then if you take the market gearing, 369 00:19:36.555 --> 00:19:38.875 which is debt non divided by book equity, 370 00:19:39.055 --> 00:19:42.675 but by market value of equity market capitalization, 371 00:19:43.215 --> 00:19:45.355 you understand that the debt structure, 372 00:19:45.695 --> 00:19:47.475 the gearing is a fraction. 373 00:19:47.985 --> 00:19:51.475 It's significantly less than one. What does it mean? 374 00:19:51.495 --> 00:19:53.875 It means that the financial structure is extremely 375 00:19:53.875 --> 00:19:56.875 conservative if you trust values. 376 00:19:59.405 --> 00:20:02.705 Now, what is in the mind of investors and rating agencies? 377 00:20:03.125 --> 00:20:04.145 Do they consider that 378 00:20:04.145 --> 00:20:07.465 because of the value of the company, the enterprise value, 379 00:20:07.965 --> 00:20:10.065 the debt structure is extremely conservative, 380 00:20:10.845 --> 00:20:13.345 or do they consider that even though there are some good 381 00:20:13.665 --> 00:20:16.105 prospects in the revenues, the financial leverage is high? 382 00:20:16.835 --> 00:20:19.145 Definitely the approach which is privileged 383 00:20:19.165 --> 00:20:20.905 by the market is leverage 384 00:20:21.495 --> 00:20:24.385 more than gearing in a decision making process. 385 00:20:25.625 --> 00:20:29.905 S and p is providing a rating which is B plus Moodys 386 00:20:29.925 --> 00:20:34.265 and FI equivalent BBB minus, so it's speculative grade, 387 00:20:34.455 --> 00:20:38.665 it's high yield debt, and that's quite interesting 388 00:20:38.665 --> 00:20:41.505 because you could interpret that with the fact 389 00:20:41.505 --> 00:20:44.945 that the market valuation is extremely volatile, 390 00:20:45.705 --> 00:20:47.065 absolutely not guaranteed. 391 00:20:47.785 --> 00:20:49.965 The one thing which counts if you want 392 00:20:49.965 --> 00:20:54.605 to repair your debt is cash and stock price is not cash. 393 00:20:54.835 --> 00:20:55.845 It's a valuation, 394 00:20:56.275 --> 00:20:59.245 it's a transaction which happened a few minutes ago. 395 00:20:59.505 --> 00:21:03.645 It is absolutely not cash to repair the debt. EBDA is cash. 396 00:21:05.825 --> 00:21:08.125 Now the consequence of a probability of default, 397 00:21:08.125 --> 00:21:09.845 which is perceived as quite high 398 00:21:10.065 --> 00:21:13.885 by the rating agencies on the capital market, the cost of 399 00:21:13.885 --> 00:21:14.925 that is going to be high. 400 00:21:15.465 --> 00:21:18.165 If you look at the last issues of the company 401 00:21:18.885 --> 00:21:20.725 communicated in the regulated information, 402 00:21:21.225 --> 00:21:24.725 the interest rate is nine to 10%, 403 00:21:25.015 --> 00:21:27.805 which is significantly higher than the governed bond rate. 404 00:21:27.855 --> 00:21:31.805 There is a very high risk premium, very high probability 405 00:21:31.825 --> 00:21:34.245 of default in the valuation of the bonds. 406 00:21:36.785 --> 00:21:38.725 You understand that the cost of that is quite high, 407 00:21:38.725 --> 00:21:40.805 which is consistent with the rating of the company. 408 00:21:41.545 --> 00:21:44.285 But what is very interesting is to observe the evolution 409 00:21:44.285 --> 00:21:46.965 of the perception of the bond market 410 00:21:47.505 --> 00:21:51.005 of the investors in the bonds in terms of risk, 411 00:21:51.745 --> 00:21:53.845 and then there is a very nice way to observe that, 412 00:21:53.845 --> 00:21:56.085 which is a credit de swap market. 413 00:21:56.825 --> 00:22:00.325 The cost of the CDS is what you are ready to pay in order 414 00:22:00.345 --> 00:22:03.805 to make sure that your investment in the bond is quite safe. 415 00:22:04.265 --> 00:22:05.405 You remember what happened 416 00:22:05.405 --> 00:22:09.605 with the CDS market when the subprime crisis uh 417 00:22:10.245 --> 00:22:12.925 exploded and it's interesting to observe what happened 418 00:22:12.925 --> 00:22:16.005 to a rle and coal wave the last three months 419 00:22:16.565 --> 00:22:19.525 starting in September for a rockle, 420 00:22:19.825 --> 00:22:21.805 the five year born and 10 year born. 421 00:22:22.035 --> 00:22:26.085 This credit Defo swap was half a percent a little bit more 422 00:22:26.465 --> 00:22:30.165 and it doubled to one and 1.5% 423 00:22:30.825 --> 00:22:33.765 and you observe what happened to the stock price of Oracle, 424 00:22:33.765 --> 00:22:37.765 which is very much involved in data centers with a lot of 425 00:22:37.765 --> 00:22:40.365 that in the balance sheet for coal wave, 426 00:22:40.555 --> 00:22:41.885 it's even more dramatic. 427 00:22:42.585 --> 00:22:46.285 The credit falls to up rate in September was 4%, 428 00:22:46.395 --> 00:22:48.525 4.5% depending on the maturity, 429 00:22:48.905 --> 00:22:52.725 and today it's 6.5, 7.5%. 430 00:22:53.225 --> 00:22:55.285 So what is perceived by the market is 431 00:22:55.285 --> 00:22:57.565 that it's extremely risky business 432 00:22:57.985 --> 00:23:00.685 and with a huge impact on your ability 433 00:23:00.745 --> 00:23:03.125 to repetitive debt on the property of default. 434 00:23:05.655 --> 00:23:07.295 I mentioned that the company went public 435 00:23:07.295 --> 00:23:09.295 during the first quarter of 2025. 436 00:23:09.955 --> 00:23:11.775 It happened in March, 2025 437 00:23:11.875 --> 00:23:13.695 and the price which was proposed 438 00:23:13.695 --> 00:23:16.735 to the market is $40 per share. 439 00:23:17.275 --> 00:23:20.895 The company issued 37.6 million shares, which is an increase 440 00:23:21.035 --> 00:23:23.735 by 9% of the number of shares outstanding, 441 00:23:24.475 --> 00:23:25.735 one multiplied by the other. 442 00:23:25.795 --> 00:23:28.335 It gives you uh, the amount of money which is raised 443 00:23:28.335 --> 00:23:30.695 by the company from the market, 1.5 billion, 444 00:23:31.395 --> 00:23:33.255 but they reduced very much ambition. 445 00:23:33.275 --> 00:23:35.935 The initial ambitions were about 4 billion 446 00:23:36.475 --> 00:23:37.495 and they were not sure 447 00:23:37.495 --> 00:23:40.295 that the market would accept such a high amount. 448 00:23:41.045 --> 00:23:44.295 Then they redo their ambitions to 1.5 and it was a success, 449 00:23:45.025 --> 00:23:47.005 but a success in terms of liquidity, 450 00:23:47.105 --> 00:23:48.845 not very much in terms of stock price. 451 00:23:48.945 --> 00:23:53.285 The closing price, the first day of listing is $40, 452 00:23:53.455 --> 00:23:54.685 which means that the company 453 00:23:55.325 --> 00:23:57.205 accepted the price but not more. 454 00:23:59.375 --> 00:24:01.035 What's very interesting is to understand 455 00:24:01.035 --> 00:24:05.035 that in the ordinary shares they are ahas and B shares. 456 00:24:05.325 --> 00:24:07.915 There are 300 million of ahas each 457 00:24:07.915 --> 00:24:10.795 and every share hold one voting right, 458 00:24:11.495 --> 00:24:14.475 118 million B shares each 459 00:24:14.475 --> 00:24:16.955 and every B share has 10 voting rights 460 00:24:17.335 --> 00:24:18.795 and there are reserves as a founders, 461 00:24:18.805 --> 00:24:22.635 which is very traditional in the so-called new economy. 462 00:24:22.935 --> 00:24:25.515 The shares which were offered are a shares. 463 00:24:25.975 --> 00:24:29.595 So of course the founders were diluted in terms of 464 00:24:30.255 --> 00:24:31.435 net asset value, 465 00:24:31.695 --> 00:24:35.395 but they were not diluted at all in terms of voting rights 466 00:24:35.395 --> 00:24:38.035 and they keep the control is 80% of the shares 467 00:24:40.125 --> 00:24:41.535 Shortly after its listing. 468 00:24:41.685 --> 00:24:44.335 Coal Wave started discussions with core scientific 469 00:24:44.475 --> 00:24:47.695 to buy core scientific core scientific company, 470 00:24:47.825 --> 00:24:49.695 which was created the same year 471 00:24:49.755 --> 00:24:53.215 as Coal Wave in 2017 was the same business model 472 00:24:53.275 --> 00:24:54.655 mining for cryptos. 473 00:24:55.275 --> 00:24:57.575 The company experienced very big problems 474 00:24:57.715 --> 00:25:01.455 and put itself under the protection of chapter 11 in 2022, 475 00:25:02.155 --> 00:25:04.455 crypto and energy cost 476 00:25:05.035 --> 00:25:09.615 and the company was ED to NASDAQ in 2024. 477 00:25:10.205 --> 00:25:13.655 Same s pivot HPC for ai, 478 00:25:14.195 --> 00:25:17.055 but the very key advantage for cost scientific 479 00:25:17.155 --> 00:25:20.895 and extremely reliable and efficient access to energy. 480 00:25:21.555 --> 00:25:24.655 If you look at the existing capacity plus projects under 481 00:25:24.685 --> 00:25:27.455 development, it's most at two gigawatt 482 00:25:27.455 --> 00:25:30.935 and you remember it's absolutely emal for this business, 483 00:25:31.145 --> 00:25:34.335 which is consuming GPUs from Nvidia 484 00:25:34.515 --> 00:25:36.615 but also a lot of electricity, 485 00:25:39.125 --> 00:25:40.935 Coal wave and core scientific. 486 00:25:41.085 --> 00:25:42.615 They know each other quite well 487 00:25:43.045 --> 00:25:46.615 because coal wave is leasing capacity to core scientific. 488 00:25:47.515 --> 00:25:50.375 In fact, the one is in tenant, the other one is a landlord. 489 00:25:51.005 --> 00:25:54.255 When you sign a long term contract with a kind of uh, 490 00:25:54.345 --> 00:25:55.855 lease commitment, you also have 491 00:25:55.855 --> 00:25:57.175 to show it on the balance sheet. 492 00:25:57.175 --> 00:25:59.215 This is IFRS 16. 493 00:25:59.755 --> 00:26:03.575 You discount the lease payments which are committed 494 00:26:04.235 --> 00:26:07.535 and then it's an amount which is absolutely not negligible. 495 00:26:07.605 --> 00:26:12.055 It's $3 billion in the IPO prospectus end of Q3, the 10 Q, 496 00:26:12.435 --> 00:26:16.335 nearly $5 billion and then Core Wave 497 00:26:16.435 --> 00:26:18.095 and discloses that they're going 498 00:26:18.095 --> 00:26:22.975 to internalize $12 billion in lease payments plus 499 00:26:23.115 --> 00:26:25.455 and wall synergies between the two companies, 500 00:26:25.485 --> 00:26:27.575 500 million per year, et cetera. 501 00:26:27.875 --> 00:26:30.175 But you understand that the rationality 502 00:26:30.515 --> 00:26:33.415 for core wave is this kind of lease flexibility, 503 00:26:33.985 --> 00:26:37.055 especially if there is uncertainty in the demand. 504 00:26:37.435 --> 00:26:39.655 You analyze the lease payments 505 00:26:39.675 --> 00:26:42.055 and then you don't have to show huge losses. 506 00:26:42.935 --> 00:26:45.725 Press access to energy, press size 507 00:26:46.025 --> 00:26:47.605 and then bargaining power. 508 00:26:47.905 --> 00:26:50.405 You understand the rationality for Coal wave. 509 00:26:52.815 --> 00:26:55.785 Unfortunately for Coal Wave, this uh, 510 00:26:55.815 --> 00:26:57.425 deal which was quite favorable 511 00:26:57.425 --> 00:26:59.145 for them did not go to the end. 512 00:27:00.045 --> 00:27:02.465 The companies listed in March, 2025, 513 00:27:02.525 --> 00:27:04.345 the stock price is skyrocketing 514 00:27:04.345 --> 00:27:06.545 and in July, 2025 they make an offer. 515 00:27:07.335 --> 00:27:10.905 They evaluate Core Scientific at $9 billion 516 00:27:11.605 --> 00:27:13.785 and it's an all stock transaction, so they're going 517 00:27:13.785 --> 00:27:14.985 to pay with their own shares. 518 00:27:15.725 --> 00:27:19.585 The stock price which is offered for Car Scientific paid 519 00:27:19.655 --> 00:27:23.265 with Core Wave stocks is $20.40 per share, 520 00:27:23.475 --> 00:27:27.745 which was a premium of 66% against the last 521 00:27:28.095 --> 00:27:29.225 days of stock prices. 522 00:27:29.965 --> 00:27:33.825 The price of Core Wave at that time is speaking at 165, 523 00:27:34.445 --> 00:27:35.745 so you understand that they are going 524 00:27:35.745 --> 00:27:40.625 to offer 0.1235 call wave shares 525 00:27:40.645 --> 00:27:44.145 for one core scientific shares end of October. 526 00:27:44.415 --> 00:27:48.745 Core wave stock price is down from 1 65 to 1 33 527 00:27:49.325 --> 00:27:52.025 and then the evaluation of Core Scientific is no more. 528 00:27:52.025 --> 00:27:54.785 9 billion is 7.3 billion, 529 00:27:55.445 --> 00:27:57.705 but there are some estimates considering 530 00:27:57.735 --> 00:28:00.865 that Core Scientific is worth 11 billion 531 00:28:01.165 --> 00:28:03.665 and certainly not seven points, 3 billion. 532 00:28:04.735 --> 00:28:07.905 When Core Scientific withdraws from the deal at the end 533 00:28:07.905 --> 00:28:11.825 of October, core wave is at $82 per share. 534 00:28:12.085 --> 00:28:14.465 So it's quite rational for Core Scientific 535 00:28:14.485 --> 00:28:17.665 to say either you change a conversion price, 536 00:28:17.805 --> 00:28:21.385 you change the rate at which you are going to buy our shares 537 00:28:21.645 --> 00:28:23.585 or we withdraw and they withdrew. 538 00:28:25.415 --> 00:28:27.995 Now it's quite interesting to put all the pieces together 539 00:28:28.055 --> 00:28:30.435 and observe what happens with stock price of coal wave. 540 00:28:30.435 --> 00:28:35.235 Since the listing, the company is listed at $40 per 541 00:28:35.235 --> 00:28:38.835 share, not many changes from March to May, 542 00:28:38.935 --> 00:28:43.795 and then the stock price skyrocketing get to a peak in June, 543 00:28:44.065 --> 00:28:47.115 July and at that time they start a discussion 544 00:28:47.115 --> 00:28:48.155 with Core Scientific 545 00:28:48.175 --> 00:28:51.915 and they make the offer then the stock price goes down, get 546 00:28:51.935 --> 00:28:55.915 to a low point, which is September, 1890, 547 00:28:56.415 --> 00:28:59.635 and then interestingly you remember that the CDS, the cost 548 00:28:59.635 --> 00:29:02.155 of the CDS is up starting in September. 549 00:29:02.855 --> 00:29:05.835 In the meantime, the stock price is back 550 00:29:05.895 --> 00:29:08.955 to a very high level showing a return 551 00:29:08.955 --> 00:29:12.075 of 250% as opposed 552 00:29:12.075 --> 00:29:15.115 to the stock price when the company is listed. 553 00:29:15.815 --> 00:29:18.515 So you have the probability of de default of the debt, 554 00:29:18.515 --> 00:29:21.635 which is up in the meantime the stock price which is up, 555 00:29:21.725 --> 00:29:23.995 which means that the company is investors, 556 00:29:24.455 --> 00:29:25.955 the financial analysts, 557 00:29:26.185 --> 00:29:29.675 they don't trust the stock price when it is about assessing 558 00:29:29.815 --> 00:29:31.435 the probability of deferred of the dead. 559 00:29:32.185 --> 00:29:35.915 Then after this second peak, it's down and it's down 560 00:29:35.915 --> 00:29:39.515 because of a core scientific deal which does not work 561 00:29:39.655 --> 00:29:40.995 and then it's further down 562 00:29:41.045 --> 00:29:45.445 because of the announcement in Q3, you reduce the revenues 563 00:29:45.445 --> 00:29:48.205 and the guidance, you reduce the operating income 564 00:29:48.265 --> 00:29:50.245 and you reduce the capital expenditures 565 00:29:50.665 --> 00:29:54.045 and today it's plus 100 something percent 566 00:29:54.065 --> 00:29:55.245 as opposed to stock price. 567 00:29:55.395 --> 00:29:59.285 When the company is issued Each's 80 something against 40. 568 00:29:59.945 --> 00:30:03.205 In the meantime, the NASDAQ is up by 36%, 569 00:30:03.205 --> 00:30:05.805 so it's not bad deal for the investors, 570 00:30:06.265 --> 00:30:09.525 but you understand that there was quite a lot of volatility, 571 00:30:10.055 --> 00:30:14.735 especially this last month Quite recently 572 00:30:14.875 --> 00:30:17.655 and the age of December, 2025. 573 00:30:17.835 --> 00:30:20.375 The company announces another debt issue, 574 00:30:20.555 --> 00:30:23.735 but it's not a straight traditional classical debt. 575 00:30:24.165 --> 00:30:27.895 It's a hybrid convertible bonds, so it's a debt 576 00:30:27.895 --> 00:30:30.215 to debt which can be converted into equity. 577 00:30:30.315 --> 00:30:32.295 The stock price is high enough at maturity. 578 00:30:33.115 --> 00:30:36.135 The initial amount which is offers $2 billion. 579 00:30:36.195 --> 00:30:38.695 It will be an overall allocation, a green shoe, 580 00:30:39.195 --> 00:30:40.895 $2.25 billion. 581 00:30:40.955 --> 00:30:44.455 At the em. The maturity is September, 2031 582 00:30:45.075 --> 00:30:48.015 and the coupon is 1.75 cm. 583 00:30:48.475 --> 00:30:51.575 You remember that for the straight debt it was nine to 10%. 584 00:30:51.715 --> 00:30:53.935 Now one of the main advantages 585 00:30:53.955 --> 00:30:57.535 of issuing convertible bond is you redo the cost of debt. 586 00:30:58.435 --> 00:31:00.695 The other advantages are you are going 587 00:31:00.695 --> 00:31:02.375 to postpone the dilution 588 00:31:02.515 --> 00:31:04.855 and you're going to reduce the dilution 589 00:31:05.555 --> 00:31:07.135 and this is a reason is 590 00:31:07.135 --> 00:31:10.095 because the company is issuing the bond at a nominal value, 591 00:31:10.095 --> 00:31:11.535 which is more than a stock price 592 00:31:12.195 --> 00:31:15.215 and the actual conversion will take place at maturity 593 00:31:15.355 --> 00:31:18.775 and now today the nominal of the bond is $1,000. 594 00:31:19.195 --> 00:31:20.375 The conversion rate, 595 00:31:20.385 --> 00:31:22.895 which is a final adjustment when you issue the bond 596 00:31:23.435 --> 00:31:25.775 is 9.2764. 597 00:31:26.395 --> 00:31:31.135 The breakeven is $107.80, which is 598 00:31:31.685 --> 00:31:34.655 exactly 1000 divided by the conversion rate 599 00:31:35.235 --> 00:31:39.855 and if you compare 1 0 7 0.8 with a current stock price 600 00:31:40.235 --> 00:31:44.095 of $88 when the company issuing the debt, 601 00:31:44.525 --> 00:31:49.255 it's a premium of only 23%, only 23% 602 00:31:49.355 --> 00:31:51.775 and the maturity of six euro. 603 00:31:52.275 --> 00:31:55.255 So you understand that it's absolutely not aggressive 604 00:31:55.515 --> 00:31:57.415 and it's going to be quite a great success. 605 00:31:59.865 --> 00:32:03.475 It's interesting to observe how on an accounting point 606 00:32:03.475 --> 00:32:06.915 of view the financial analysts are treating the convertible 607 00:32:06.985 --> 00:32:08.235 bond in the balance sheet. 608 00:32:08.905 --> 00:32:12.755 Well, first, the option of the convertible bond is out 609 00:32:12.755 --> 00:32:15.075 of the Monet because the stock price is less than the break 610 00:32:15.075 --> 00:32:19.955 even of 107.8, which we calculated, so it's treated as debt, 611 00:32:20.435 --> 00:32:22.235 straight debt, but if the stock price goes up, 612 00:32:22.265 --> 00:32:24.915 then the probability that the bond is converted 613 00:32:24.915 --> 00:32:25.955 to shares higher 614 00:32:26.695 --> 00:32:28.195 and the option is in the money, 615 00:32:28.865 --> 00:32:31.555 then the financial analysts are going to put part 616 00:32:31.555 --> 00:32:35.715 of the debt in equity and the rest of it remains as debt. 617 00:32:36.505 --> 00:32:39.685 Then if you reduce debt, you reduce the financial leverage, 618 00:32:39.705 --> 00:32:40.965 you reduce the gearing 619 00:32:41.425 --> 00:32:44.165 and then this is quite good for the probability 620 00:32:44.165 --> 00:32:45.205 of de default of your debt. 621 00:32:45.205 --> 00:32:47.005 It's quite good for your rating. 622 00:32:47.395 --> 00:32:49.365 It's a reduction in the leverage. 623 00:32:51.605 --> 00:32:54.545 How did the stock market react to the announcement 624 00:32:54.545 --> 00:32:55.945 of this convertible bond issue? 625 00:32:56.685 --> 00:32:58.425 It was very interesting. 626 00:32:58.655 --> 00:33:01.385 Immediately, stock price went down by 10% 627 00:33:01.895 --> 00:33:03.865 from 88 to 80. 628 00:33:04.645 --> 00:33:07.345 Oh, what is happening to the company, et cetera, 629 00:33:07.725 --> 00:33:11.865 and then Hower by Hower, it went up back 630 00:33:11.865 --> 00:33:15.065 to 88 and it went back to 90, 631 00:33:15.765 --> 00:33:20.545 so you understand how much market are volatile, nervous, 632 00:33:20.775 --> 00:33:23.145 anxious about any announcement, oh, 633 00:33:23.145 --> 00:33:25.865 they are issuing convertible bond, what is happening? 634 00:33:26.655 --> 00:33:30.795 Huge, huge volatility And 635 00:33:30.795 --> 00:33:34.275 what Satya Nadella, the very charismatic CEO of 636 00:33:34.915 --> 00:33:39.195 Microsoft said in February, 2025, is not going 637 00:33:39.195 --> 00:33:40.435 to reduce the anxiety 638 00:33:40.455 --> 00:33:42.235 and the volatility of the stock market. 639 00:33:42.885 --> 00:33:44.515 Discussing about data centers, 640 00:33:44.575 --> 00:33:48.115 he said there will be an overbuilt, there will be oversupply 641 00:33:48.175 --> 00:33:51.515 and then as a consequence the prices are going to calm down. 642 00:33:52.575 --> 00:33:55.275 You understand that this kind of statement is not going 643 00:33:55.275 --> 00:33:56.435 to make shareholders 644 00:33:56.735 --> 00:34:00.555 and investors in bonds feel very comfortable about the 645 00:34:00.555 --> 00:34:01.675 risk of their investment. 646 00:34:02.655 --> 00:34:04.675 It is increasing the volatility, 647 00:34:04.815 --> 00:34:06.715 it is increasing the anxiousness, 648 00:34:07.335 --> 00:34:11.315 but this is why also when you build a data center which is 649 00:34:11.315 --> 00:34:14.435 dedicated to AI and LLMs, you go for take 650 00:34:14.495 --> 00:34:15.635 or pay arrangements. 651 00:34:15.935 --> 00:34:17.915 If there is a take or pay arrangements, you know 652 00:34:17.915 --> 00:34:19.515 that your revenues are going 653 00:34:19.515 --> 00:34:21.995 to be a little bit quarantined for the next years. 654 00:34:22.415 --> 00:34:24.995 Though the business is extremely nervous 655 00:34:26.705 --> 00:34:28.965 As a conclusion, there is a considerable 656 00:34:29.315 --> 00:34:30.805 uncertainty in this business. 657 00:34:31.415 --> 00:34:32.965 Technology is fast moving. 658 00:34:33.265 --> 00:34:35.085 You remember that your GPU is going 659 00:34:35.085 --> 00:34:37.845 to be completely obsolete in three to four years time. 660 00:34:38.495 --> 00:34:41.005 There is an uncertainty about capacity, 661 00:34:41.005 --> 00:34:43.325 which I mentioned Satya and Adela. 662 00:34:43.335 --> 00:34:44.685 There will be over a capacity 663 00:34:44.685 --> 00:34:46.205 and you don't know at the end of the day, 664 00:34:46.635 --> 00:34:50.365 there's a huge uncertainty about electricity prices. 665 00:34:51.185 --> 00:34:54.005 Is it possible to build a model about electricity 666 00:34:54.005 --> 00:34:55.925 prices in medium term? 667 00:34:56.105 --> 00:35:00.765 That's extremely complex. What about demand for LLMs for ai? 668 00:35:01.155 --> 00:35:04.645 What about that? That is 80% of the project finance. 669 00:35:05.265 --> 00:35:08.445 Do you understand that? You pile up all these different 670 00:35:08.615 --> 00:35:10.245 risks and uncertainties 671 00:35:10.505 --> 00:35:13.925 and this is why the market is extremely reactive 672 00:35:13.925 --> 00:35:16.645 between quote, the market is extremely anxious 673 00:35:16.825 --> 00:35:19.005 and nervous about everything which is 674 00:35:19.005 --> 00:35:20.085 happening in this business. 675 00:35:20.975 --> 00:35:22.525 Thank you very much. I.