Friday January 11, 01:16 PM
Paragon launches 287 mln stg rights issue UPDATE
(Updates to add analyst comment, share price, detail)
LONDON (Thomson Financial) - Buy-to-let lender Paragon Group of Companies said it plans to raise 287 mln stg through a deeply discounted rights issue in order to plug a funding
gap left by the credit crunch, pushing its share price sharply lower.
Paragon (Xetra: 555869 - news) , which lends to house buyers who aim to let out their properties, said the proceeds will be used to repay a 280 mln stg loan that falls due on Feb 27.
Under the terms of the rights issue, shareholders will be offered the opportunity to buy new shares in the group at an effective discount of 90.2 pct to yesterday's closing price of 102 pence.
By 12.40 pm, Paragon shares were down 41 pct at 60 pence, valuing the company at about 68 mln stg.
'Reduced funding liquidity means a poorer outlook for growth. Add in concerns about housing market volumes, impairments and administration, and sentiment is likely to remain stacked against the share near term,' analysts at Keefe, Bruyette & Woods wrote in a note.
Paragon has had problems raising funding since worries over rising defaults against US sub-prime mortgages prompted banks to suspend lending to each other in August last year.
The company, which does not take customer deposits, had previously relied entirely on borrowing in the wholesale markets to fund its lending.
Paragon said today that its lending banks had refused to renew its existing credit facilities, and that efforts to arrange alternative sources of finance had also failed.
The company said it hoped to resume normal operations once credit markets reopen, but added that it would close to new business and return capital to shareholders in the event of prolonged uncertainty in the credit markets.
Paragon shareholders are due to vote on the proposed rights issue at an extraordinary general meeting on Jan 28.
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