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Shares in Amigo Holdings crashed almost 40% as the struggling U.K. subprime lender put itself up for sale after its founder, James Benamor, unseated its chief executive and chairman.
Amigo said it had launched a strategic review and formal sale process after Benamor’s Richmond Group investment vehicle indicated that it was willing to sell its near 61% stake in the business.
The company, which hasn’t yet received any takeover approaches, has appointed investment bank RBC Capital Markets to carry out a strategic review which could include selling all or parts of the group.
Amigo AMGO, -22.35%, the U.K.’s largest provider of guarantor loans, lends to borrowers with bad credit scores, allowing friends or family members to act as guarantors if customers are unable to pay their bills. It offers an interest rate of about 49.9% APR. It typically provide loans of £500-£10,000, which are paid back between one and five years.
The company was valued at around £1.3 billion when it floated on the London Stock Exchange LSE, -1.74% at 275 pence a share in June 2018. However, its shares have since dropped by almost 80% amid pressure from U.K. watchdog the Financial Conduct Authority and a deteriorating economic outlook.
On Monday, shares in Amigo plunged 38.24% to 42.04 pence at 8:40 GMT, valuing the company at £203.7 million.
Chief executive Hamish Paton stepped down from the company in December after less than five months, alongside chairman Stephan Wilcke. At the same time, Benamor, who had resigned from the company after its flotation, used his controlling stake to force himself back onto the board as a non-independent, non-executive director.
Prior to the changes at the top, Amigo warned in August of slower annual growth in its loan book, sending the shares down 50% on one day.
Russ Mould, investment director at stockbroker AJ Bell, said: “Will anyone be brave enough to buy guarantor lender Amigo? By saying it wants to sell its 60.66% stake, Amigo’s biggest shareholder Richmond has sent a signal to the market that it sees little chance of value generation in the near term.”
He added: “This is somewhat odd as Richmond only recently had two of its representatives appointed to Amigo’s board, which led to the resignation of both the chairman and chief executive.”
In a short update alongside the sale announcement, Amigo said its loan book growth and impairments for the nine months ended Dec 31, 2019 were in line with earlier guidance, which stated it would remain broadly flat. However, it cautioned that future lending volumes could be impacted by the strategic review of the business.
Amigo said it “remains confident in the robustness of its approach to lending decisions,” but said “we are concerned that there may be increased pressure on our business and a continual evolution in the approach of the Financial Ombudsman Service.”
In November, the FCA completed a review of the guarantor loans sector and told Amigo it had to more clearly explain the risks to its customers’ friends and family when they agree to act as a guarantor.
“Amigo has been under pressure from the regulator to improve the way it conducted business,” Mould said, adding: “Richmond may have come to the conclusion that this isn’t a fight worth backing and it is better to cut its losses than continue sweating away.”
Potential bidders have until 5 p.m. on Feb. 17 to declare their interest.
