Prospa float postponed indefinitely

Prospa was scheduled to start trading on the Australian Securities Exchange (ASX) last week, with a market capitalisation of $576 million after raising $146.5 million through its initial public offering.

However, minutes before listing on 6 June, the lender revealed in a disclosure to the ASX that there would be a 48-hour delay so that it could “clarify queries raised by ASIC [on Tuesday] in relation to Prospa’s small business loan terms”.

The lender further noted that these questions were “in the context of an industry-wide review” into unfair small business loan terms.

Following a board meeting on 7 June and a consultation with investment bankers UBS and Macquarie, Prospa has now decided to postpone the float.

According to media reports, this decision was in response to “a loss of momentum” around the deal following last week’s delay, with the lender suggesting that it would now regroup.

A statement issued by Propsa on Friday (8 June), read: “Following consultation with UBS and Macquarie, joint lead managers for Prospa’s IPO, the company has postponed its IPO on the Australian Stock Exchange (ASX).

“Prospa received a letter from ASIC on the afternoon of Tuesday, 5 June 2018, requesting information as part of a broader industry review of small business lending contract terms.

“Prospa understands that a similar review and consultation process is underway with the other major industry participants in the small business lending space. In response to this letter, the decision was made to pause the listing on Wednesday morning, 6 June 2018, to allow time to engage with ASIC and other stakeholders.

“Over the past 48 hours, Prospa has constructively engaged with ASIC to review its current loan terms and has provided detailed information in response to the regulator’s queries.”

The statement continued: “Prospa is satisfied that the issues discussed with ASIC are not material to the IPO and no additional disclosure is required in the prospectus. ASIC has not raised further queries on the prospectus. The company continues to perform strongly and May 2018’s originations were 23 per cent ahead of the prospectus forecast.

“The company has the complete support of its board and existing shareholders. Major shareholders, including Entrée Capital, Square Peg Capital and AirTree Venture Capital, committed over $47 million to the IPO (equivalent to almost half of the new funds coming into the company) and continue to be fully supportive of the company.”

Ombudsman calls for greater clarity on fintech loan terms

The news comes amid renewed calls for fintechs to make their loan terms explicitly clear to customers.

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, recently told Mortgage Business that she was concerned that fintechs, including Prospa, are making their interest rates “really hard to understand”.

“The problem is that, currently, the fintech industry — and Prospa, for that matter — don’t like quoting [annual percentage rates]. They want to quote factor rates. [Many] people don’t understand what a factor rate is,” Ms Carnell said.

She continued: “The dilemma with the current way that Prospa and others reflect the cost of loans is not transparent. If people want to pay high interest rates, that’s absolutely their call as long as it’s really clear what the cost of the loan is.”

According to the ASBFEO, there needs to be greater transparency (among all fintech lenders) around establishment fees and direct transfer fees.

“The sort of loans that are given here are loans that are paid back daily… which means there’s a direct transfer fee every day. It might be a couple of bucks, but [it’s] every day, so that adds to the cost of a loan,” Ms Carnell said.

“I’m not suggesting that the way the loans are structured is a bad way to structure them. I’m just saying that the transparency of the cost needs some work.”

Ms Carnell told Mortgage Business earlier this week that if Prospa’s prospectus did not adequately reflect how its contracts are compliant with the amended consumer law, then delaying the listing makes sense, as it’s legally important that the document is accurate prior to being admitted to the ASX.

“Prospa has said in the prospectus and other places that they have looked at their contracts. They didn’t go on to say, ‘And we believe the contracts are totally compliant’,” the ASBFEO said.

“There [are] pretty strong laws around prospectuses being reflective of the current situation and also potential future situations.”

[Related: Prospa delays listing to answer ASIC]