A Mauritian asset management firm and a property company have bought major stakes in European Wealth.
The AIM-listed wealth management firm revealed in a stock exchange announcement that it is issuing around 48 million shares at 12.8p each in a bid to raise net proceeds of £8.8 million.
Mauritian-based Astoria and Kingswood, a subsidiary of Kingswood Property Finance, have each acquired 36.2% of the new issuance. The pair have also underwritten the remainder of the issuance should existing shareholders choose not to take up the offer.
Following the purchase, Astoria and Kingswood will each own 24.13% of European Wealth's enlarged capital base if existing shareholders acquire the remainder of the new shares.
European Wealth, which is headed by John Morton (pictured), will use the cash raised to pay off its debt, which includes £2 million under the Kingswood Bridge Facility and £1.14 million in relation to past acquisitions made by the firm.
Since its launch in 2011, European Wealth has been in part funded by debt.
The fundraising means the company will be finally free of debt, allowing it to focus on its growth strategy. The firm told the market it believes that the potential value creation for the medium to long term benefit of shareholders arising from the fundraising outweighs the dilutive effects of the subscription.
'The board has explored a number of options and believes that the fundraising is the best option available to the group to re-capitalise its balance sheet and build a strong platform from which to pursue its stated strategy more effectively,' European Wealth said in a statement.
'Through the subscription, the board is pleased to have secured the support of two new major shareholders, Kingswood and Astoria. Both support the group's vision and intend to play an active role in helping accelerate the development of the business.'
The news was accompanied by full-year numbers from European Wealth, which showed assets under management had risen by 45% to £1.65 billion in 2016.
The firm said it had made a positive start to this year, stating 'two new revenue generators were recruited in the first three months of 2017 [which should] be contributing to the group's revenue in a very short space of time'.
Additionally, the investment management business recently received all the necessary regulatory authorisations from the FSA in South Africa. It also expects the speed of clients transferring from Towry to European Investment Management to accelerate over the next few months.
'Despite this strong performance, the board believes that the company's share price has been adversely affected by its capital structure, due to uncertainty over how the debt would be redeemed and concerns that interest payments absorb too much cash flow and reduce the group's ability to invest in the future,' European Wealth said.