Cryptocurrency mining equipment producer Bitmain’s initial public offering (IPO) application on the Hong Kong stock exchange (HKEX) has officially expired which means this listing won’t be happening promptly.

As per an update found on the HKEX website, Bitmain’s application has been passed into a group of “inactive” applications and has been labelled as lapsed, six months after the mining firm filed the prospectus on the 26th September 2018.

Should the mining manufacturer still wish to pursue a listing, it can re-file the application; however, the firm will be required to provide additional financial records on top of what it included in the initial application.

As per a listing rule from the HKEX, “the latest financial period reported on by the reporting accountants for a new applicant must not have ended more than six months from the date of the listing documents.” However, it must be noted that Bitmain’s last public filing only covers the period ending June 30 2018, close to nine months ago.

Bitmain’s application garnered widespread attention last year as the mining firm revealed outstanding profit growth during the previous few years. In 2018 the mining giant netted nearly $1 billion in the first half of the year and in 2017 netted just over $1 billion.

Despite the rampant growth in the bottom line which is a clear reflection of the explosive cryptocurrency market of 2017, the Hong Kong Stock Exchange was reluctant to approve any applications from Bitmain and its rival mining firms Canaan Creative and Eban, due to the volatility of the industry.

Notably, Bitmain lost a whopping $500 million during the market slump of 2018. At this time it’s unclear whether Bitmain is considering to file for another attempt at going public.

The company posted an announcement on Tuesday stating:

“Bitmain’s listing application to HKex in September 2018 has reached its 6-month expiration date. … We will restart the listing application work at an appropriate time in the future.”

Furthermore, in the same announcement, the firm also announced the resignation of co-founders Jihan Wu and Micree Zhan. Haicho Wang, who was a previous director of product engineering at Bitmain, was officially elected as Bitmain’s CEO mere months after a news report alluded to a possible shakeup in management.

Should Bitmain fail to find an alternative route for going public, the firm could face action to repay more than $700 million to its venture capital investors.

$700 Million Later:

As of June 20th, 2018 Bitmain had a $715 million liability on its balance sheet labelled as “redeemable, convertible and preferred shares,” as result of the firms Series A and Series B funding rounds which were completed over the past two years.

At the time this amount accounted for close to half of the firm’s total liabilities.

As per the firm’s IPO prospectus, the terms to which Bitmain agreed to with its investors included a redemption clause, which in a nutshell, gives shareholders the power to require Bitmain to either redeem or repurchase all or part of their share if either one of two events had to occur.

The first situation is “neither a qualified [REDACTED] nor a qualified trade sale defined in the terms has occurred by the fifth anniversary of the preferred shares’ issue date,” according to the document. The second one is when a breach by the firm or its controlling shareholders which has a “material adverse effect” on the company’s overall operations and “has not been cured within 30 days as defined in the terms.”

A partner at the law firm Baker McKenzie FenXun, Shirley Wang, who has extensive expertise in debt capital markets stated that redemption clauses are standard practice in protecting investors. She added that it’s not uncommon for investors to initiate redemption procedures. However, it must be noted, that the circumstances under which redemption rights could be executed vary from deal to deal according to Wang.

Despite it being unclear what exactly was redacted from the passage from Bitmain’s prospectus, a glaring clue can be found in a term sheet for Bitmain’s B+ funding round, wherein the firm raised $440 million.

According to a document, investors have the legal right to redeem all of the B+ preferred shares at any time after the earlier of:

“i) 5 years from the closing date (if no qualified IPO), or ii) upon any breach by any Group company or any founder parties of the terms of the transaction documents in connection with the transactions contemplated hereby which amounts of a material adverse effect and is not cured within 30 days.” [Emphasis added]

If this was the case, any Series B+ investors could require Bitmain to redeem the shares in an amount which is equal to the purchase price plus “all declared and unpaid dividends” as well as “an assumed 10% compounded” annual return for every year where such shares remain outstanding from the time of the closing date, less any amount paid back to investors.

Furthermore, the term sheet specified what a qualified IPO implies for Bitmain’s B+ investors:

“Qualified IPO is defined as an underwritten public offering of ordinary shares of the Company at a public offering price per share (prior to underwriting commissions and expenses) that values the Company at least US$18 billion in an offering of not less than $500 million).”

Even though the amount of money Bitmain expected to raise from the IPO was redacted from the HKEX prospectus, sources have indicated that the proceeds could have reached as high as $18 billion at a market cap of $40 to $50 billion.