Strategy's Saylor in talks with MSCI as index exclusion threat looms

By Utkarsh Shetti and Federico Maccioni

DUBAI, Dec 3 (Reuters) - Michael Saylor, chairman of Strategy, the world's biggest corporate bitcoin stockpiler, told Reuters on Wednesday that his company is engaging with MSCI over an upcoming decision on whether to exclude it from the index provider's indices.

MSCI has said it plans to decide by January 15 if it will remove companies whose business model is to buy cryptocurrencies amid concerns they resemble investment funds, which are currently not eligible for index inclusion.

Strategy's shares are down over 37% this year, outpacing bitcoin's 0.6% fall on the year, suggesting its game plan of selling stock and racking up debt to buy more of the crypto asset may be losing its charm with investors.

MSCI's possible shake-up could lead to outflows of as much as $8.8 billion from its stock if other index providers follow suit, according to a JPMorgan estimate.

'IT WON'T MAKE ANY DIFFERENCE,' SAYS STRATEGY'S SAYLOR

Strategy is currently part of the MSCI USA and MSCI World indices, which draw investors that track benchmarks through passive vehicles such as ETFs, boosting demand for the stock and its valuation.

JPMorgan said in a note last month that an exclusion would cast doubt on the company's costs and ability to raise equity and debt in the future.

Asked in an interview on the sidelines of a Binance event in Dubai whether the company was in conversations with MSCI, Saylor said: "We're engaging in that process," adding he was not sure that JP Morgan's numbers on the outflows were correct.

"It won't make any difference, in my opinion," he said of a potential exclusion from MSCI's indices.

BITCOIN'S DECLINE HITS STRATEGY HARD

A fall in the price of bitcoin, which had its biggest monthly drop since mid-2021 in November, has hit Strategy hard. It slashed its full-year earnings forecast on Monday, flagging up to $5.5 billion in losses, compared to an expected profit of $24 billion a month earlier.

Strategy operates as a digital asset treasury, a vehicle that uses a listed company to stockpile cryptocurrencies in a bid to capitalise on spikes and enable more cautious investors to gain exposure to the riskier assets via equities.

Strategy shares rose 2.1% in premarket trading on Wednesday, as market sentiment recovered slightly.

"The equity is going to be volatile, because the company is built on amplified bitcoin. If bitcoin falls ... 30%, 40% then the equity is going to fall more, because the equity is built to fall," Saylor told Reuters.

Strategy is currently leveraged by a multiple of 1.11, and could survive a 95% drop in the price of bitcoin, Saylor said.

Its meteoric success has inspired a rise in the number of publicly traded firms following its playbook. But the recent slump could force those companies to sell their holdings, adding downward pressure on prices.

MSCI is proposing potentially excluding any companies whose digital asset holdings are more than half of their total assets.

(Reporting by Utkarsh Shetti and Federico Maccioni in Dubai, additional reporting by Medha Singh in Bengaluru; Writing by Elizabeth Howcroft in Paris; Editing by Louise Heavens and Joe Bavier)