A report by the Australian Financial Review has revealed that the shares of Bitcoin (BTC) mining company Iris Energy Ltd. have gone down by 94.5 percent since its initial public offering.
Iris Energy’s stock is currently listed in the major U.S. index NASDAQ Composite. When the company went public on November 17, 2021, it listed 8.3 million shares priced at $28 per unit. Iris Energy’s stock reached its all-time high of $28.25 per unit within the same day as its IPO. A week before the IPO, BTC was priced above $69,000 per token.
Based on the Australian Financial Review’s report, several top asset management, including Regal Asset Management and Grok Ventures, invested in Iris Energy. Due to the sharp drop in the company’s share value, these investors also suffered “huge drawdowns.”
Recently the mining company revealed that its U.S. creditor, New York Digital Investment Group (NYDIG), had demanded Iris repay a $107.8 million loan for a crypto mining machine purchase. Iris Energy eventually announced that it would default on the loan.
This loan was taken by the mining company’s subsidiaries, structured as special purpose vehicles (SPVs), and they could not pay it back. The lender now has the right to those crypto-mining machines and can collect them, per Iris Energy co-CEO Daniel Roberts.
“The value of those machines is now substantially below the value of the debt outstanding and the cash flow generated by those machines is insufficient to service their debt-financing obligations,” Roberts said.
Defaulting as economical choice
Roberts further explained that Iris Energy began using its subsidiaries to take out loans to continue the business operations. Despite the issue that many crypto mining companies faced due to the winter, Roberts insisted that his company was “still super excited about the business and the industry.”
According to the report, Iris Energy also owes crypto mining machine producer Bitmain a $75 million prepayment. Earlier in November, Iris Energy failed to pay Bitmain. The company is likely unable to make upcoming payments to Bitmain as well.
Iris Energy is not the only crypto mining company facing loan issues. Currently, 75 percent of BTC mining operations are conducted by private companies. Mining software provider Luxor revealed that most of these private companies did not disclose the loans they had taken to support their rigs. Therefore, analysts predicted that there were more defaults unknown to the public.
CoinShares digital asset analyst Matthew Kimmell attributed the lack of quality due diligence by lenders as a contributor to these bad loans. According to Kimmell, many lenders did not thoroughly check whether these crypto miners were credit-worthy. When the miners cannot pay their loans due to low cash resources, they default and give up the collaterals.
Luxor COO Ethan Vera said the loan collaterals are usually worth less than the miners’ remaining payments. Therefore, defaulting is more economical. The COO explained that these miners focused more on surviving within the next six months. They did not consider the long-term of defaulting, such as not being able to take another loan from the same lenders in the future.
As more mining companies defaulted on their loans, lenders faced a dilemma of whether to sell the mining rigs or mine BTCs themselves. On the other hand, many tokens have continued decreasing in value, including BTC and Ether (ETH). Blockware Solutions chief executive Mason Jappa said he found many unused crypto machines “everywhere.”