GLI Finance (GLI) has altered its proposed measures to strengthen its balance sheet following investor feedback on its original proposals. It has accepted a capital and cash injection from a strategic investor, Somerston Group, and it intends to work closely with the company in the future. GLI will undertake a strategic review of its alternative finance platforms and focus its resources on those it believes will generate incremental shareholder value; this may result in write-downs. The dividend has been halved to 2.5p and the CEO, Geoff Miller, has left the company. Subject to finalising negotiations and GLI shareholder approval, Somerston will provide additional support including a cash injection in return for GLI warrants and a 50% share of GLI’s asset manager. We have adjusted our forecasts for the December 2015 share issue, the cancelled zero issue and the new dividend policy, but not yet for the additional measures proposed and still subject to shareholder approval. The prospective yield for 2016 is 6.8%, slightly lower than the yield on alternative finance loan funds.
Somerston subscribed to an equity increase (6.5% of adjusted total) on 31 December 2015, which provided GLI with a capital injection of £5.5m. It is negotiating a comprehensive strategic relationship with GLI, which will require shareholder approval. Although the details could change the current proposals are that in return for 32m GLI warrants (potentially increasing its holding to 17.9%), a 50% holding in in GLIAM (GLI’s asset manager) and c £15m of GLI’s shares in GLAF (GLI’s investment trust), Somerston will do the following: (a) pay GLI c £15m of cash for its GLAF shares; (b) pay £0.25m for a 50% holding in GLIAM; and (c) support GLIAF's growth by subscribing to a c £10m 'C' share issue and potentially giving it additional funds to manage.
GLI has rebased its dividend to a minimum 2.5p per year, from 5.0p, to enable it to support the growth of its platforms. Our revised forecasts indicate that the 2.5p could be covered by cash earnings if GLI’s subsidiaries remit it c £3.9m of dividends, which could be possible based on management’s comments on the profitability of some of its investments. Acceptance of the proposals for additional support would reduce the amount of remittance required to £3.1m before converting the warrants, and £1.7m afterwards.