The Amigo Holdings PLC (LON: AMGO) share price has fallen 31.6% this year after the company faced some challenges trying to find investors willing to invest in the court-mandated £45 million equity funding for it to resume its lending operations.
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Amigo has gotten commitments from various investors willing to participate in the capital raise, but it does not have a lead investor. The current commitments also fall short of its £45 million target putting the company at risk of liquidation.
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If the company cannot raise the much-needed capital by issuing 19 new shares for each existing share, it will have no choice but to revert to the fallback plan, which is the orderly wind-down of its business. The liquidation process guarantees that ordinary shareholders will not be compensated for their holdings.
However, there seems to be some optimism among investors given the recent gains made by Amigo shares, which are now up 15.85% in the past week. Still, the only way that the guarantor lender will remain operational is by raising the much-needed funding, and most investors are hoping that the capital raise will be successful.
Meanwhile, Amigo has continued moving forward as it prepares to resume lending activities. The company is currently running a pilot lending programme as it tests its new lending infrastructure under the RewardRate brand, under which it will house all its lending activities.
The pilot lending project has been successful so far. The company expects the UK’s Financial Conduct Authority (FCA) to approve its return to lending once it raises funds mandated by the court settlement.
The recent optimism surrounding Amigo’s share price is encouraging. Still, the company is yet to announce that it has secured all the funding needed for its massive capital raise that will significantly dilute existing shareholders.
Therefore, I would not buy Amigo shares until the company secures commitments from investors for £45 million to make its looming capital raise successful. Until then, the company is still at risk of liquidation, which would wipe out all common shareholders.
*This is not investment advice.
The Amigo share price chart.
The Amigo share price has fallen 31.65% this year but has risen 15.85% in the past week. What’s next?
eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.