Michael Saylor Faces Fresh Funding Threat on MSCI

Michael Saylor Faces Fresh Funding Threat on MSCI-Exit Risk

(Bloomberg) — A rebound in Bitcoin has brought some relief for Michael Saylor’s Strategy Inc. But just as market pressure begins to ease, an old threat from index provider MSCI is resurfacing.

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MSCI is considering rules that could remove the company from its global equity indexes, potentially adding new strain to the financing model behind Strategy’s vast Bitcoin holdings. The consultation comes as Saylor seeks more capital to continue buying Bitcoin, adding to concerns over shareholder dilution and the performance of securities issued to finance more than $60 billion in purchases.

The proposal would exclude companies that MSCI determines are primarily engaged in accumulating assets rather than operating businesses. Applying the methodology as of May would have resulted in the removal of Strategy and Japanese Bitcoin treasury company Metaplanet Inc. and Yellow Cake Plc, which invests in uranium

The proposal revives a threat that appeared to have receded earlier this year, when MSCI abandoned a plan that would have targeted companies with large digital-asset holdings. Instead, the index provider said it would undertake a broader review of companies whose activities were more investment-oriented than operational.

That distinction is now at the center of the latest consultation. Rather than creating a rule specifically aimed at Bitcoin or other digital assets, the proposal released earlier this month seeks to determine whether a company has sufficient operating activity to qualify for inclusion in an equity benchmark.

“MSCI has broadened the discussion to a more fundamental question: what should qualify as an operating company for inclusion in an equity benchmark,” said Edward Yoon, index strategist at Macquarie Capital.

Strategy’s shares have jumped more than 35% in the past week as Bitcoin climbed back above $80,000, offering some relief after a prolonged slide in both the cryptocurrency and the company’s stock. The shares are still down roughly 60% over the past year.

The prospect of exclusion from a major index could add another layer of pressure to Strategy’s capital structure. Removal can weigh on a stock as the pool of investors required to own it shrinks, potentially reducing demand.

Source: finance.yahoo.com