Strategy’s recently controversial capital increase and its possible dilution effect came to the fore again at the BTC Prague event on Wednesday. In the session, Strategy Chief Executive Michael Saylor and Strike and Twenty One Capital CEO Jack Mallers discussed the criteria by which investors should evaluate the company’s increasingly complex capital structure.
Which items are taken into account in the mNAV calculation
Jack Mallers asked Saylor how he defines multiple net asset value ratio, or mNAV. Mallers reminded that some investors include securities below the strike price in their calculations and raised the issue of whether this approach is correct. According to the data cited in the news, Strategy currently has $6.7 billion in convertible debt, and these debts are among the instruments that are not expected to convert into equity at the current share price of $115.
Mini dictionary: mNAV is a multiplier that shows how many times a company’s market value is trading at a premium or discount to its net assets. Convertible debt refers to a debt instrument that can be converted into shares under certain conditions; If it remains below the strike price, conversion may not be considered economically attractive.
Saylor stated that mNAV can be calculated by taking into account the nominal value of convertible debt, common share capital and preferred shares together. However, he emphasized that this method is not the only valuation framework. He stated that investors can also look at different indicators such as gross assets per share and net assets per share, and preferred shares or convertible debt can be excluded in these calculations.
Saylor explained that mNAV is only one of the criteria that can be used, and investors can also evaluate with alternative indicators such as gross and net assets per share.
Balance sheet response to the irrigation debate
Mallers also asked what would constitute an example of a truly dilutive transaction if the issuance of shares in exchange for cash was not considered dilutive. This episode formed the center of the debate. Strategy, previously known as MicroStrategy, is closely watched in the cryptocurrency market as a company that stands out for holding a large amount of Bitcoin on its balance sheet.
According to Saylor, the issuance of shares for cash is not, by itself, inherently a dilutive transaction. Because shareholders receive a tangible asset such as cash or Bitcoin in return. Saylor argued that raising capital strengthens the balance sheet, expands the capital base and supports the creditworthiness of the company.
Saylor stated that as long as cash or Bitcoin enters the company in return for the issuance of shares, this does not automatically mean dilution, on the contrary, it can strengthen the balance sheet.
To support his view, he said Strategy recently added about $100 million to its U.S. dollar reserves. He stated that thus, the company’s total reserves in dollar terms reached approximately 1 billion dollars. In Saylor’s assessment, when the share of debt and preferred shares in the total asset base remains limited, which calculation method is chosen becomes less decisive.
This discussion at BTC Prague once again highlighted that Strategy’s capital structure should be read not only through Bitcoin assets, but also through its combination of debt, preferred shares and equity. The message that investors should be careful about which items they include, especially when interpreting ratios such as mNAV, came to the fore.
