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Home Capital shares fall after flagging going concern issues

Published 05/12/2017, 10:01 AM
Updated 05/12/2017, 10:10 AM
© Reuters. FILE PHOTO: The entry to the Home Capital Group's headquarters are seen in an office tower in the financial district of Toronto
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TORONTO (Reuters) - Shares in Home Capital Group Inc (TO:HCG) fell as much as 20 percent in early trading on Friday after the lender said uncertainty around future funding had cast doubt about whether it could continue as a going concern.

Shares in Canada's biggest non-bank lender hit a low of C$8.70 in early deals before recovering to trade down 11 percent at C$9.60.

Home Capital issued first-quarter results after the market closed on Thursday, alongside which it stated that: "Management believes that material uncertainty exists regarding the company's future funding capabilities as a result of reputational concerns that may cast significant doubt upon the company's ability to continue as a going concern."

Depositors have withdrawn nearly 94 percent of funds from Home Capital's high-interest savings accounts since March 27, when the company terminated the employment of former Chief Executive Martin Reid.

The withdrawals accelerated after April 19, when Canada's biggest securities regulator, the Ontario Securities Commission, accused Home Capital of making misleading statements to investors about its mortgage underwriting business.

Home Capital relies on deposits from savers to fund its lending to borrowers, such as self-employed workers or newcomers to Canada, who may not meet the strict criteria of the country's biggest banks.

Reuters reported on Thursday that Home Capital was in talks to divest about C$2 billion in assets to help pay down a high-interest loan, according to people familiar with the situation.

The lender needs to raise funds to help repay a C$2 billion loan from Healthcare of Ontario Pension Plan (HOOPP), which provided the high-interest line of credit last month, charging interest of 10 percent on outstanding balances. Home Capital has so far drawn down C$1.4 billion from the facility but is hoping to secure alternative funding on more favorable terms.

In a conference call with investors on Friday, Chief Financial Officer Robert Morton confirmed the company is considering selling assets to enable it to refinance quicker and pay off the emergency loan provided by HOOPP.

"Given the cost of the C$2 billion credit line repayment of amounts, repayment of the amounts drawn under this facility in a timely fashion is an essential part of management's plans. This may necessitate asset dispositions," he said.

© Reuters. FILE PHOTO: The entry to the Home Capital Group's headquarters are seen in an office tower in the financial district of Toronto

Home Capital disclosed data on Friday that showed the rate of withdrawals by depositors was slowing, a day after the company raised doubts about its ability to continue as a going concern.

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