Amigo Loans Shares Fell 14.6% As Investors Waited for Updates

The Amigo Holdings PLC (LON: AMGO) share price fell by 14.6% as investors wait for updates from the company about resuming lending operations. While it is understandable that investors may be getting impatient with the company, we should give it more time.

In its last announcement on 29 November 2022, Amigo said that it was in negotiations with some of its institutional shareholders regarding the mandatory capital raise that must happen before it can resume full-fledged lending activities as instructed by the courts.

The upcoming subscription is not easy, given that the guarantor lender will issue 19 new shares for each outstanding share, significantly diluting existing shareholders. But luckily for the company, institutional investors are usually more understanding regarding such matters. 

Amigo’s backers know that the share issue has to happen for the company to resume lending activities, which should pay off immensely in the future. While retail investors may think institutions would oppose such a proposal, nothing could be further from the truth. 

Investment funds and banks are known to be very accommodating of risk. For example, institutional lenders gave Cineworld $1.9 billion after it filed for bankruptcy protection, yet the company has an $8 billion debt burden with no viable repayment options.

The same case applies to Carnival, which has a massive debt pile and continues to raise money in the form of new bonds from institutional and accredited investors. But unfortunately, institutions led by banks live by different rules than they do for retail investors and individual borrowers. 

So long as you are an institution, banks and other institutions will bend the rules to serve you and keep your business alive, which is usually different for small businesses and individuals. For example, banks apply stringent lending rules to small entities when giving them loans. 

Amigo will raise the much-need cash mostly from its institutional backers, and the company is a much better bet than other debt-laden firms. Therefore, it is just a matter of time before Amigo can resume lending activities via its new brand RewardRate. 

Investors who can stomach a bit of risk may find Amigo shares attractive at current prices since they are trading near a long-term support level. However, you should factor in the impending share issues and overall dilution. 

*This is not investment advice. 

Amigo Loans share price.

Amigo Loans shares plunged 14.6% to trade at 4.27p, falling from Wednesday’s closing price of 5.00p.