Ecsponent sinks as it warns of default

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Ecsponent sinks as it warns of default

Published Date: 2020-02-12 | Source: Stephen Gunnion | Author: Stephen Gunnion

Ecsponent sinks as it warns of default

The small cap financial services company says it will not be in a position to redeem preference shares that are due for payment next month.

Ecsponent's shares fell over 12% yesterday after it warned that it was likely to default on its obligation to redeem preference shares and pay dividends next month as it doesn't have the funds. It also says it will report an interim loss.

The small cap financial services company was due to buy back preference shares worth about R188 million but said the various funding alternatives it explored came to nothing. It also wasn't able to convert its current asset base, which is aimed towards long-term capital growth, into cash in a short space of time.

The difficulties follow a change in its business model from a credit provider to small and medium-sized businesses and entrepreneurs in Southern Africa to a private equity investor. That saw it switch a large amount of its interest-bearing loans into equity in the underlying businesses, most notably a big increase in its equity investment in MyBucks to give it greater influence over the German fintech company's direction. However, MyBucks hasn't been performing well.

Much of the group's expansion has been funded through its preference share programme, which lets it raise capital to pay for investments on an ongoing basis. However, due to the change in its business model it said this was no longer appropriate and it was assessing various options pursuant to a capital restructure, including the potential conversion of preference shares into ordinary shares in the event of a default. It's also looking at selling non-core assets to help pay down debt.

It expects to report a loss for the six months to end-December from a profit a year earlier. It said it would release a further trading statement once it had a clearer picture of its financial position.

Its shares closed 12.5% lower at 7c in light trade yesterday.



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