Zopa backer cuts valuation of peer-to-peer lender by almost half



Zopa’s valuation was cut significantly by one of its investors this week as political uncertainty and the poor performance of its rival Funding Circle weighed on sentiment towards the once-hyped peer-to-peer lending sector.

Augmentum Fintech, a London-listed investment trust, took a 47 per cent writedown on the value of its 6.2 per cent stake in the privately held lender ahead of the completion of a £140m fundraising that was announced on Tuesday.

Zopa is the UK’s oldest peer-to-peer lender, connecting retail and institutional investors with consumers in need of personal and car loans. However, the company has been attempting to transition into traditional banking to provide a stickier source of funding and expand the range of products it can provide.

A spokesman for the lender declined to comment on Augmentum’s valuation or the terms of the new deal.

Augmentum announced the writedown alongside its interim results on Wednesday morning.

It had valued its stake in Zopa at £21.9m in August 2018, giving Zopa an overall worth of £354m. The investment trust’s new calculation values Zopa at an estimated £188m, before including the impact of the capital it raised this week.

The fintech investor, which was spun out of the Rothschild family backed RIT Capital, added “our view of the company’s prospects has not changed and although this has an impact on the valuation of our holding in Zopa, we believe it will still deliver a compelling return over time.”

Augmentum said there had been “significant investor interest” in Zopa, but said many potential backers had wanted to delay due diligence until there was “more economic and political stability in the UK”.

It said the negative backdrop had been exacerbated by Zopa’s “poor performing listed peer” Funding Circle.

Shares in Funding Circle have shed more than three-quarters of their value since the group’s London initial public offering in September last year, amid concerns about rising losses and its rates of bad debt.

But Augmentum stressed that Zopa — which focuses on consumer rather than business lending — “has a materially different business model to several other large peer-to-peer lenders”.

Early enthusiasm about peer-to-peer lenders has cooled in the wake of a string of failures at smaller players including the property focused Lendy and an investigation into the sector by the Financial Conduct Authority.

The FCA will next week introduce stricter rules to improve behaviour in areas such as governance and advertising.

The shift in attitude has led many early pioneers to seek alternative models. While Funding Circle increasingly relies on institutional investors to provide capital to its borrowers, Zopa is the first platform to attempt a transition into banking. Zopa, which has arranged more than £5bn of loans so far, planned to start offering credit cards and fixed-term deposits after securing its banking licence.

Zopa needed to raise the extra capital to support its bid for a full licence, and agreed the investment with only hours to spare before its temporary licence expired. The uncertainty about its future — and the potential value of Augmentum’s stake — caused Augmentum to delay the publication of its results, which were originally due to be reported last week.

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