A quick recap first. Under former CEO Geoff Miller, GLIF had invested in just under 20 platforms from around the world, focused on alternative funding for SMEs. These include global trade finance, UK and US SME lending, offshore lending, UK invoice discounting, European invoice discounting, global multi-asset crowd funding and UK property-backed lending – in most cases GLIF has taken a combination of equity and loan investments in each platform. The changes announced today are all fairly ‘strategic’ in nature. They include news that GLIF will :
· Cancel its proposed ZDP/CULS issue: In early December, GLI Finance (GLIF) proposed a £40m 2020 Zero Dividend Preference share issue and £30m CULS issue, in order to refinance debt with interest payable at 11% pa.
· Geoff Miller, CEO, has resigned with immediate effect. Andy Whelan, Executive Director, will take the role of interim CEO pending appointment of a permanent replacement.
· Initiate a Strategic Review - The Board will carry out a detailed strategic review of the portfolio in 2016.
· Cut the dividend by 50%: The company has been paying quarterly dividends equivalent to 5p pa, or a 13.4% yield. The board now expects to pay not less than 2.5p pa paid quarterly, equivalent to a 6.7% yield.
· Strategic partnership with Jersey based Somerston / Golf Investments. Somerston is a privately owned group headquartered in Jersey, originally based around interest in the shipping industry.
· Run an Equity issue: Somerston has agreed to subscribe for 15m new ordinary shares at 37p (raising £5.55m). GLIF will also issue (subject to shareholder approval) Golf Investments warrants exercisable over 32m ordinary shares: 10m warrants exercisable at 40p; 10m exercisable at 45p; and 12m exercisable at 55p.
· Repay Sancus loans to GLIF. GLIF platform Sancus is currently owed by GLIF £24.9m in loans with interest charged at 11%pa.
This is a fairly comprehensive set of announcements and represents what can only be said to be a big change in the direction of this publicly listed fund, not least that the CEO Geoff Miller has quit. With the share price currently at 35.6p – down 4p on the first day – it’s clear that investors haven’t exactly reacted with joy to the overlapping set of announcements.
To be fair there are some big positives, not least the fact that the proposals will generate cash of £20.8m, as well as saving c.5m pa from a lower dividend payment – in addition, there is the potential to raise £15.1m of further capital from Somerston if warrants are exercised. Our sense is that the shares had been drifting because of concern about the sustainability of the dividend as well as worry that there wasn’t enough funding going forward for the varied platforms within the GLIF family. If the business sticks to its 2.5p target then a 7% yield is possible which feels about right. There’s also the chance that the strategic review might result in some stakes in businesses being sold – this could result in some capital uplift although that depends on a decent price being raised.
There’s also some continuity in management terms as the rest of the management team seem to be in place post Miller, with Whelan a key figure of continuity. But it must also be noted that according to Bloomberg Geoff Miller still owns 1.28% of the share capital. He’s probably not going to be a great fan of the changes announced and we can well imagine that non Somerston shareholders (the other 90% plus shareholder base) might have some strong views about the significant dilution of their shareholding. It’s also clear that the Jersey based Somerston will have a major role in the direction of the group moving forward. We’d also pass on an observation by investment trust analysts at Numis to the effect that “GLIF now looks much more like an operating company than a traditional fund. It is questionable how relevant the NAV is, given the inherent uncertainty in valuing equity stakes in early stage financing platforms.”
But for us the biggest issue is the scarcity of capital for listed players in this field. GLIF had built a fairly diverse range of investments in businesses around the world. This should have been relatively easy to fund – these platforms need constant capital injections in order to keep growing. But the sad reality is that public market investors didn’t want to stump up the cash. That’s why GLIF struggled to get the ZDPs away. There may be a wall of money coming into the sector globally but it seems like most of it is going into a small handful of very big platforms.
The cynic might observe that GLIF is now in play. Somerston has made its offer via Golf but its upto the rest of the shareholder base to agree. Some may seek an outside investor and it wouldn’t be a surprise if a much bigger financial investor decided to take an interest. Watch this space.