Yahoo Finance Provident tests the water on £500m rights issue
Doorstep loans giant Provident Financial has been sounding out investors about a bumper cash call as it seeks to draw a line under the most disastrous period in its 140-year history.
Management want to raise as much as £500m to pay a string of forthcoming fines and repair the firm’s battered balance sheet. Senior bankers said a rights issue could even be unveiled alongside Provident’s annual results this week. Investment bankers at Cazenove and Barclays have led the discussions with investors and are likely to act as chief underwriters on the deal, if it goes ahead.
The company, which provides high-interest loans to people who struggle to secure mainstream credit, was plunged into crisis last year after a botched attempt to modernise its debt collection practices led to a big profit warning.
An attempt to swap 3,800 part-time agents for 2,500 full-time ones led to a steep fall in debt collections as staff left or moved to rivals.
The failed reshuffle forced the firm to issue a second profit warning two months later.
The calamitous spell triggered the exit of boss Peter Crook and wiped out two thirds of its stock market value in a single day.
The firm was founded in Bradford in 1880 to provide affordable credit to poor families in West Yorkshire, but it was only in the wake of the financial crisis that it rose to real prominence.
The firm stepped into the hole left by high street banks who reined in lending.
Despite strong criticism about doorstep lending practices from charities, Provident had chalked up a stock market value of £5.3bn by late 2015, propelling it firmly into the FTSE 100. However, its recent woes have led to its ejection from the blue-chip index.
Provident’s troubles have been compounded by regulatory probes. The Financial Conduct Authority is examining its credit card and car finance arms.
Fears of a cash call have been mounting in recent weeks. In January, Provident warned that losses at its Home Credit division would be at the top end of guidance. It also said talks with the FCA were progressing “with a view to reaching a resolution of the regulatory investigations”.
However, analysts have questioned whether the doorstep lender can afford to pay potential mis-selling fines. Penalties could total as much as £300m, JPMorgan Cazenove estimated.
