Zhibao Technology Inc., a Nasdaq-listed Shanghai-based company that sells digital insurance products in China, said Wednesday that it has signed a non-binding term sheet for a proposed stock sale in which the buyer would pay with roughly 3,500 Bitcoin.

The proposed PIPE financing would be worth approximately $220 million at current BTC prices. The buyer, identified as Joyertech and Information OPC, would also be expected to designate a majority of Zhibao’s board of directors when the transaction closes, effectively giving it control of the company while existing management continues to oversee day-to-day operations.

The announcement came one week after Zhibao disclosed that it had received a Nasdaq deficiency letter on July 15 because its shares were trading below $1. The company’s stock briefly more than doubled after the Bitcoin treasury announcement.

According to Zhibao’s press release, “the Buyer (or its designated entity) intends to subscribe for securities in a proposed PIPE financing of the Company, with consideration expected to include approximately 3,500 Bitcoin, subject to final valuation, custodial arrangements, audit verification, regulatory review, Nasdaq compliance, and the execution of definitive agreements.”

A PIPE, or private investment in public equity, is a transaction in which a private buyer purchases shares directly from a publicly traded company rather than buying them on the open market. In Zhibao’s proposed transaction, Joyertech and Information OPC would pay for the shares in Bitcoin rather than cash.

Board control and existing operations

The proposed financing includes terms that extend beyond adding Bitcoin to Zhibao’s balance sheet. Under the term sheet, “the Company intends to maintain its existing operations while the Buyer is expected to designate a majority of the members of the board of directors at the closing of the PIPE financing.”

That structure would give Joyertech effective control of Zhibao after closing, a setup that resembles a reverse merger or backdoor listing, in which a private entity gains control of an already public company. Zhibao, which trades on Nasdaq under the ticker ZBAO, describes itself as “a leading high-growth InsurTech company and pioneer of the 2B2C digital embedded insurance model in China.”

The company says it launched the first digital insurance brokerage platform in China in 2020. Its platform is built around a platform-as-a-service model, a cloud-based system that allows other businesses to offer insurance products to their customers.

On July 15, Zhibao disclosed that it had received a Nasdaq deficiency letter for failing to meet the exchange’s minimum bid price requirement of $1 per share. At the time, the stock was trading around $0.22.

After the Bitcoin financing announcement, Zhibao’s share price rose from $0.15 to $0.40 in less than four hours, more than doubling during that period. The move later cooled, and the stock settled around $0.24, still about 60% above the earlier level.

Bitcoin treasury structure

The proposed deal follows a structure that has become more common among public companies seeking Bitcoin exposure. Instead of raising cash and then buying Bitcoin on the open market, as companies including Strategy, formerly MicroStrategy, began doing in 2020, Zhibao would receive Bitcoin directly as payment for newly issued securities.

That would place a Bitcoin treasury on Zhibao’s balance sheet from the start of the transaction, if it is completed. The arrangement raises questions about how a Shanghai-based company would manage Bitcoin holdings given China’s prohibition on cryptocurrency trading and mining, which has been in effect since 2021. The press release does not address how the company would handle custody or regulatory compliance under Chinese law, though it notes that the transaction is subject to regulatory review.

The company’s current management would remain involved in the business for the time being. The press release states that “the current management team is expected to continue overseeing the day-to-day operations of the legacy business” until a later “separation, disposition, or other restructuring” occurs.

In practice, that means the existing team would continue running the insurance operations until the new controlling board determines the future structure of that legacy business.

The Bitcoin treasury trend has spread across Wall Street over the past two years, with companies of varying sizes restructuring around BTC holdings. More than 150 publicly traded companies now hold Bitcoin on their balance sheets. Under accounting rules updated by the U.S. Financial Accounting Standards Board in late 2023, companies holding certain crypto assets are required to measure them at fair value each reporting period, meaning Bitcoin holdings would be reflected at current market prices on Zhibao’s financial statements.

The strategy has not always produced lasting gains. Several public companies that became digital asset treasury companies, or DATs, initially recorded large paper gains and sharp stock-price increases after their announcements, but enthusiasm around crypto treasuries later faded as the bear market developed.

In one recent example, U.K.-based Satsuma Technology announced that it would sell its remaining Bitcoin, refund investors, and shut down operations.

Zhibao’s proposed transaction is not final. The company’s filing emphasizes that the term sheet is non-binding, and that the proposed transaction “remains subject to, among other things, the completion of satisfactory legal, financial, and operational due diligence, the negotiation and execution of definitive agreements, applicable corporate and regulatory approvals, compliance with Nasdaq listing requirements, and the satisfaction of other customary closing conditions.”

Zhibao has 180 calendar days, until January 6, 2027, to regain compliance with Nasdaq’s $1 minimum bid price requirement.