Nscale borrows $3.36bn in notes that turn into shares when it lists

Nscale's private round is bigger than its public one is expected to be. The notes total $3.36bn ^[1]. The offering Nscale filed for may raise as much as $3bn, according to people familiar with the matter cited by Bloomberg ^[8]. That puts the pre-listing money at about 1.12 times the listing money ^[10], or roughly $6.36bn between the two if both land at those sizes ^[11]. Every dollar of the notes turns into stock automatically once the IPO completes ^[4].

The release does not include a conversion price, a discount to the offer price, an interest rate, a maturity or a valuation ^[7]. That leaves three ways this can go. If the listing completes, the notes convert and the open question is how many shares $3.36bn buys ^[4]. If it slips, Nscale carries the $2.36bn funded at closing as loans while it builds, and Nvidia's $1bn arrives in mid-November as more of the same ^[2]. If it fails, the whole amount stays debt on terms outsiders have not seen ^[1]. The November date is a small clue. Either Nscale does not expect to be listed by then, or Nvidia's notes will convert soon after the cash lands ^{[2] [4]}.

I think these are pre-IPO shares sold in the form of loans. Conversion is automatic, so Third Point and the other lenders are betting on the offer price, and Nscale is leaving the value of $3.36bn of claims for the IPO book to set ^{[1] [4]}. The counter-case is a steep discount or a price floor written into the terms. Holders with either are lenders who own an option on the stock. A prospectus showing an interest rate and maturity worth holding even if the company never listed would prove this view wrong.

Nvidia's commitment is about 30% of the round ^[12], and it gets non-voting shares when the notes convert ^[4]. Bloomberg counts Nvidia, along with Microsoft, among Nscale's partners ^[9].

The round equals about 3.3% of the $103bn in total contracted value Nscale cites ^[13]. The company says the money will go to behind-the-meter power plants, liquid-cooled data centers and large GPU clusters ^[5]. "With the backing of these world-class investors, we are strongly positioned to accelerate our data center buildouts globally," Josh Payne, Nscale's founder and chief executive, said ^[6].