17th Feb 2014 14:09
LONDON (Alliance News) - City of London Group PLC Monday said it expects its second-half losses to exceed the GBP2.0 million lost in the first six months of the financial year, with the company suffering from continued losses across its business and write-offs as a result of the funding fiasco that saw a deal to raise GBP17.4 million fall through just before Christmas.
The company's warning means its losses for the year ended March 31 2014 are likely to be more than double the GBP2.1 million pretax loss reported for 2013. Shares Monday slumped by 8.5% to 27.90 pence.
On December 23 2013, the day before City of London Group told investors its GBP17.4 million fundraising had collapsed, its shares were quoted at 58.00 pence each.
Its woes have been magnified by continued losses in litigation funding platform, Therium Capital Management Ltd, in asset backed finance provider in Credit Asset Management Ltd and working capital lender Professions Funding Ltd, as well as a "substantial loss" in Trade Finance Partners Ltd.
Adding to bad news is that the "aborted fundraising" at the end of 2013 will result in write-off costs for the company.
In an interview, Acting Chief Executive John Kent told Alliance News the write-off costs will amount to between GBP400,000 and GBP500,000.
That failed fundraising plan, which was meant to raise GBP17.4 million from Paul Iliescu - a high net worth German citizen - and Bruce Mee - who had been set for the CEO job under the share placement deal - fell through after the new investors failed to transfer the security payment to City of London Group despite receiving an extension to the original deadline.
"The funds were there," Kent told Alliance News, "they just didn't come into the escrow account [and] we're not sure why."
Kent said the Iliescu had had "quite a complicated route" for the transfer of the security payment.
The collapse of that deal coincided with the resignation of former Chairman John Williams and non-executive director Nigel Sidebottom, and City of London Group has now said it is seeking to identify potential new independent directors in order to comply with the corporate governance code. However, Kent, who has been Acting CEO since Eric Anstee quit at the end of November 2013, told Alliance News that City of London Group has, "a number of interested parties," who could provide capital to the group.
In its statement, City of London Group said it has now secured GBP5.0 million on top of the GBP4.8 million funding arrangement agreed at the end of November last year through an unsecured 7% convertible loan. About GBP2 million of the new financing will be spent on the trade finance business, with the remaining GBP3 million to be reserved for "select growth initiatives" in its platforms.
Kent told Alliance News the GBP5.0 million doesn't solve the funding problem in its entirety, but it does do a great deal for the trade finance business. However, the Loans and Leasing business "can deploy an awful lot of money," according to Kent, as long as it has the capital.
He said options for that business include both equity and debt financing.
"I would hope there would be [investor appetite]," Kent says, with the "most obvious route" being equity issuance.
"We're on the lookout for quite material funding for that business," Kent says.
The Acting CEO told Alliance News the idea of applying for a deposit-taking licence for the Loans and Leasing business is still under consideration.
"In the meantime, we need to keep it growing through people looking to injects funds," Kent said.
City of London Group said it has agreed in principle with its existing funding partners to support the next stage of growth of Trade Finance Partners, which has been suffering from lower profit margins as it moves to higher volume commodity trade finance.
"It is anticipated that the agreement will be finalised before the financial year end when a further announcement will be made with full details," the company said in a statement.
The results for the year to March 31 2014 are expected to be announced in the week beginning June 23 2014.
The company, which has previously cautioned it may be forced into selling one or more of its platforms if funding isn't secured, doesn't want to sell unless an offer, "too attractive to shareholders" is received, Kent told Alliance News.
"We have to see whether we bring them to fruition, otherwise we need to see if we're the best place for them to be," he says.
By Samuel Agini; [email protected]; @samuelagini
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