Scalare Partners Announces $5 Million Convertible Note Facility with Blackstone Mercantile, Potential Expansion to $25 Million

Overview of Scalare Partners' $5 Million Convertible Note Facility and Tranche Details

Scalare Partners has entered into a Convertible Security Funding Agreement with The Blackstone Mercantile Group Ltd. SAC, granting initial access to $5,000,000 in two tranches. The first tranche is an immediate $500,000 loan already committed under the binding agreement. The second tranche of $4,500,000 will be drawn following shareholder approval, completing the initial $5,000,000 before costs.

Any further tranches beyond the initial $5,000,000 require investor request and company approval and are not guaranteed. However, the commercial framework for additional tranches—including a fixed share price on conversion—has been agreed in principle. The total potential facility amount is $25,000,000, subject to terms outlined in the Convertible Security Funding Agreement and annexures.

Allocation of the $1,500,000 Fairfax Service Fee within the First $5 Million Draw

A significant condition of the first $5,000,000 tranche is the mandatory payment of $1,500,000 to Fairfax, an independent marketing group engaged under a separate agreement with Scalare for marketing services. This payment is designated as a service fee and must be drawn from the initial $5,000,000.

The remaining funds from the initial tranche are designated for new investments in early-stage technology companies, market communications, and general working capital. The company has not provided a detailed breakdown or timeline for investments, so investors should monitor future updates for deployment details.

Mandatory 60:1 Share Consolidation as a Facility Condition

A key requirement of the convertible note facility is a 60:1 share consolidation, whereby every 60 existing shares will be consolidated into one new share. This consolidation is subject to shareholder approval at a forthcoming general meeting. The board of directors recommends shareholders vote in favor.

If shareholder approval is not obtained, the $500,000 immediate loan becomes repayable immediately, with repayment made in shares at $0.167 per share. This would materially affect the company’s capital structure if the resolutions fail. The consolidation is essential to enable the fixed conversion price mechanism underpinning the convertible note structure.

Bonus Option Issue Planned to Mitigate Dilution for Existing Shareholders

To acknowledge shareholder support and reduce dilution from note conversion, Scalare plans a non-renounceable bonus option issue after the share consolidation. Eligible shareholders on the record date of 21 August 2026 will receive 8.7 new options for every 10 shares held, with fractions rounded up. These options will be exercisable at $0.01 each (post-consolidation) from 5 February 2027 to 31 March 2027.

Each option, when exercised, grants one ordinary share plus one "Piggy Back Option" exercisable at $0.02 each from issue until 31 March 2028. Both options will be unlisted and non-transferable. The company states these instruments primarily protect shareholder value rather than offer speculative gains and will remind shareholders to exercise before expiry.

Dilution Impact Analysis for Existing Shareholders

Scalare provided dilution modelling in annexures to the update. If all new and piggy back options are exercised, converting the initial $5,000,000 of convertible notes would reduce dilution from 67.2% to 42.8%, assuming no other securities are issued.

In a fully subscribed scenario with all $25,000,000 converted and options exercised, existing shareholders would retain about 25.1% of issued capital. If only the initial $5,000,000 is converted with options exercised, shareholders would retain approximately 57.2%. These figures assume no parallel capital raises. Details appear in Annexure E of the update.

Board’s Rationale for Rejecting Alternative Funding Options

The board considered alternatives including traditional placements, rights issues, and floating-price convertible notes. Placements and rights issues were deemed unsuitable due to limited daily trading volumes and reduced market capitalisation, likely causing greater dilution via discounted pricing and attaching options that could create stock overhang.

Floating-price convertible notes were rejected because conversion prices based on weighted average share price could lead to conversion at lower prices during weak periods, increasing dilution. The board believes the fixed-price conversion in the Blackstone Mercantile facility, combined with the bonus option issue, offers a superior outcome. The company acknowledges the terms—including the post-consolidation discount and Fairfax service fee—reflect Scalare’s "constrained bargaining position."

Scalare’s Investment Focus and Impact of Capital Constraints

Scalare’s core business is advisory services and direct investments in early-stage technology companies, targeting up to eight investments annually. Financial constraints have limited this target, restricting the company’s ability to invest at planned scale.

This facility represents a significant step toward addressing funding shortfalls and accelerating investments in its pipeline. While no specific targets or companies were named, proceeds are primarily allocated for new investments. Investors may watch for future announcements on targeted companies or sectors as funds become available.

Investor Ownership Cap and ASX Listing Rule 7.1 Approval Requirement

The Blackstone Mercantile Group Ltd. SAC has committed to holding no more than 19.99% of Scalare’s issued capital, just below the 20% takeover threshold under Australian law, providing structural protection against control via note conversions.

Because the convertible note issue exceeds Scalare’s capacity under ASX Listing Rule 7.1, shareholder approval is required. This rule limits new share issuance without approval within 12 months. Seeking approval preserves full placement capacity for future capital needs, a key consideration for funding flexibility.

Upcoming Shareholder Meeting and Required Approvals

Scalare will hold a shareholder meeting to seek approval for the convertible note issue, underlying shares on conversion under Listing Rule 7.1, the 60:1 share consolidation, and related resolutions. The board recommends voting in favor.

The update does not specify the meeting date but sets the bonus option record date as 21 August 2026, indicating the transaction timeline. Further bonus issue details will be announced separately. Investors should monitor the meeting notice, which will include a full explanatory memorandum and dilution scenarios.

Implications for Scalare’s Capital Structure and Market Position

If approved and executed, the transaction will significantly reshape Scalare’s capital structure. The 60:1 consolidation will reduce shares outstanding substantially, followed by convertible note issuance and bonus option issuance, which will add securities depending on conversion and exercise.

The company intends this structure to provide a more orderly capital base to support its technology investment strategy. Although immediate share price impact is unclear, the funding commitment, investor cap, shareholder protections, and potential $25 million funding may be viewed positively by the market amid prior capital constraints. Key upcoming milestones include the meeting notice, shareholder votes, share consolidation completion, and bonus option issue announcement.